he comparative balance sheet of Barry Company for Years 1 and 2 ended December 31 appears below in condensed form: Year 2 Year 1 Cash $72,000 $42,500 Accounts receivable (net) 61,000 70,200 Inventories 121,000 105,000 Investments — 100,000 Equipment 515,000 425,000 Accumulated depreciation—equipment (153,000) (175,000) $616,000 $567,700 Accounts payable $59,750 $47,250 Bonds payable — 75,000 Common stock, $20 par 375,000 325,000 Premium on common stock 50,000 25,000 Retained earnings 131,250 95,450 $616,000 $567,700 Additional data for the current year are as follows: (a) Net income, $75,800. (b) Depreciation reported on income statement, $38,000. (c) Fully depreciated equipment costing $60,000 was scrapped, no salvage, and equipment was purchased for $150,000. (d) Bonds payable for $75,000 were retired by payment at their face amount. (e) 2,500 shares of common stock were issued at $30 for cash. (f) Cash dividends declared and paid, $40,000. (g) Investments of $100,000 were sold for $125,000. What are the net cash flows from operating, investing, and financing activities for Year 2?
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.
| Year 2 | Year 1 | |
| Cash | $72,000 | $42,500 |
| Accounts receivable (net) | 61,000 | 70,200 |
| Inventories | 121,000 | 105,000 |
| Investments | — | 100,000 |
| Equipment | 515,000 | 425,000 |
| (153,000) | (175,000) | |
| $616,000 | $567,700 | |
| Accounts payable | $59,750 | $47,250 |
| Bonds payable | — | 75,000 |
| Common stock, $20 par | 375,000 | 325,000 |
| Premium on common stock | 50,000 | 25,000 |
| 131,250 | 95,450 | |
| $616,000 | $567,700 |
Additional data for the current year are as follows:
|
(a) |
Net income, $75,800. |
|
(b) |
Depreciation reported on income statement, $38,000. |
|
(c) |
Fully |
|
(d) |
Bonds payable for $75,000 were retired by payment at their face amount. |
|
(e) |
2,500 shares of common stock were issued at $30 for cash. |
|
(f) |
Cash dividends declared and paid, $40,000. |
|
(g) |
Investments of $100,000 were sold for $125,000. |
What are the net cash flows from operating, investing, and financing activities for Year 2?
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