Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Harlan Mining Co. for 2015 and 2014 are provided below. BALANCE SHEETS 12/31/15 12/31/14 Cash $306,000 $144,000 Accounts receivable 270,000 162,000 Inventory 288,000 360,000 PPE $456,000 $720,000 Less: acc. dep.(240,000) 216,000 (228,000) 492,000 $1,080,000 $1,158,000 Accounts payable $ 132,000 $ 72,000 Income taxes payable 264,000 294,000 Bonds payable 270,000 450,000 Common stock 162,000 162,000 Retained earnings 252,000 180,000 $1,080,000 $1,158,000 INCOME STATEMENT For the Year Ended December 31, 2015 Sales revenue $6,300,000 Cost of sales (5,364,000) Gross profit 936,000 Selling expenses $450,000 Administrative expenses 144,000 (594,000) Income from operations 342,000 Interest expense (54,000) Income before taxes 288,000 Income taxes (72,000) Net income $ 216,000 The following additional data were provided: 1.Dividends for the year 2015 were $144,000. 2.During the year, equipment was sold for $180,000. This equipment cost $264,000 originally and had a book value of $216,000 at the time of sale. The loss on sale was incorrectly charged to cost of sales. 3.All depreciation expense is in the selling expense category. Questions 1 through 5 relate to a statement of cash flows (direct method) for the year ended December 31, 2015, for Harlan Mining Company. 3. Under the direct method, the cash received from customers is a. $6,408,000. b. $6,192,000. c. $6,300,000. d. $6,330,000.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of
12/31/15 12/31/14
Cash $306,000 $144,000
Inventory 288,000 360,000
PPE $456,000 $720,000
Less: acc. dep.(240,000) 216,000 (228,000) 492,000
$1,080,000 $1,158,000
Accounts payable $ 132,000 $ 72,000
Income taxes payable 264,000 294,000
Bonds payable 270,000 450,000
Common stock 162,000 162,000
$1,080,000 $1,158,000
INCOME STATEMENT
For the Year Ended December 31, 2015
Sales revenue $6,300,000
Cost of sales (5,364,000)
Gross profit 936,000
Selling expenses $450,000
Administrative expenses 144,000 (594,000)
Income from operations 342,000
Interest expense (54,000)
Income before taxes 288,000
Income taxes (72,000)
Net income $ 216,000
The following additional data were provided:
1.Dividends for the year 2015 were $144,000.
2.During the year, equipment was sold for $180,000. This equipment cost $264,000 originally and had a book value of $216,000 at the time of sale. The loss on sale was incorrectly charged to cost of sales.
3.All
Questions 1 through 5 relate to a statement of cash flows (direct method) for the year ended December 31, 2015, for Harlan Mining Company.
3. Under the direct method, the cash received from customers is
a. $6,408,000.
b. $6,192,000.
c. $6,300,000.
d. $6,330,000.
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