Instructions: Using the following income statement and balance sheet, complete statement of cash flows using both the direct and indirect methods for operating activities. There were no non-cash transactions during the year. (adapted from Financial Accounting, 15th edition, Warren et al, Cengage) Rundell Inc. Income Statement For Year Ended December 31, 2019 Sales 1,420,000 Cost of merchandise sold 840,000 Gross profit 580,000 Operating expenses: Depreciation expense 6,200 Other operating expenses 212,000 Total operating expenses 218,200 Income from operations 361,800 Other revenue and expenses Gain from sale of land 12,000 Interest expense (7,400) 4,600 Income before income tax 366,400 Income tax expense 78,000 Net income 288,400 Rundell Inc. Balance Sheet December 31, 2019 and 2018 2019 2018 Assets Cash 208,800 26,000 Accounts receivable (net) 75,000 65,000 Inventories 158,000 180,000 Land 95,000 125,000 Building 280,000 200,000 Accumulated depreciation - building (64,500) (58,300) Total assets 752,300 537,700 Liabilities Accounts payable (merchandise creditors) 41,000 46,700 Accrued expenses payable (operating expenses) 18,200 24,300 Income taxes payable 7,400 8,400 Dividends payable 16,000 10,000 Bonds payable 75,000 150,000 Total liabilities 157,600 239,400 Stockholders' Equity Common stock ($2 par) 26,000 16,000 Paid-in capital in excess of par 110,000 80,000 Retained earnings 458,700 202,300 Total stockholders' equity 594,700 298,300 Total liabilities and stockholders' equity 752,300 537,700 Dividends Payable DR CR Balance, Jan. 1 10,000 Cash paid 10,000 Dividends declared 16,000 Cash paid 16,000 Dividends declared 16,000 Balance, Dec. 31 16,000 Common Stock DR CR Balance, Jan. 1 16,000 5,000 shares issued for cash 10,000 Balance, Dec. 31 26,000 Paid in Capital in Excess of Par - Common Stock DR CR Balance, Jan. 1 80,000 5,000 shares issued for cash 30,000 Balance, Dec. 31 110,000 Bonds Payable DR CR Balance, Jan. 1 150,000 Retired by payment of cash at face amount 75,000 Balance, Dec. 31 75,000 Building DR CR Balance, Jan. 1 200,000 Purchased for cash 80,000 Balance, Dec. 31 280,000 Accumulated Depreciation - Building DR CR Balance, Jan. 1 58,300 Depreciation for the year 6,200 Balance, Dec. 31 64,500 Land DR CR Balance, Jan. 1 125,000 Sold for $72,000 cash 60,000 Purchased for cash 30,000 Balance, Dec. 31 95,000
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.
| Instructions: Using the following income statement and balance | |||||
| sheet, complete statement of |
|||||
| and indirect methods for operating activities. | |||||
| There were no non-cash transactions during the year. | |||||
| (adapted from Financial Accounting, 15th edition, Warren et al, Cengage) | |||||
| Rundell Inc. | |||||
| Income Statement | |||||
| For Year Ended December 31, 2019 | |||||
| Sales | 1,420,000 | ||||
| Cost of merchandise sold | 840,000 | ||||
| Gross profit | 580,000 | ||||
| Operating expenses: | |||||
| 6,200 | |||||
| Other operating expenses | 212,000 | ||||
| Total operating expenses | 218,200 | ||||
| Income from operations | 361,800 | ||||
| Other revenue and expenses | |||||
| Gain from sale of land | 12,000 | ||||
| Interest expense | (7,400) | 4,600 | |||
| Income before income tax | 366,400 | ||||
| Income tax expense | 78,000 | ||||
| Net income | 288,400 | ||||
| Rundell Inc. | |||||
| Balance Sheet | |||||
| December 31, 2019 and 2018 | |||||
| 2019 | 2018 | ||||
| Assets | |||||
| Cash | 208,800 | 26,000 | |||
| 75,000 | 65,000 | ||||
| Inventories | 158,000 | 180,000 | |||
| Land | 95,000 | 125,000 | |||
| Building | 280,000 | 200,000 | |||
| (64,500) | (58,300) | ||||
| Total assets | 752,300 | 537,700 | |||
| Liabilities | |||||
| Accounts payable (merchandise creditors) | 41,000 | 46,700 | |||
| Accrued expenses payable (operating expenses) | 18,200 | 24,300 | |||
| Income taxes payable | 7,400 | 8,400 | |||
| Dividends payable | 16,000 | 10,000 | |||
| Bonds payable | 75,000 | 150,000 | |||
| Total liabilities | 157,600 | 239,400 | |||
| Common stock ($2 par) | 26,000 | 16,000 | |||
| Paid-in capital in excess of par | 110,000 | 80,000 | |||
| 458,700 | 202,300 | ||||
| Total stockholders' equity | 594,700 | 298,300 | |||
| Total liabilities and stockholders' equity | 752,300 | 537,700 | |||
| Dividends Payable | |||||
| DR | CR | ||||
| Balance, Jan. 1 | 10,000 | ||||
| Cash paid | 10,000 | ||||
| Dividends declared | 16,000 | ||||
| Cash paid | 16,000 | ||||
| Dividends declared | 16,000 | ||||
| Balance, Dec. 31 | 16,000 | ||||
| Common Stock | |||||
| DR | CR | ||||
| Balance, Jan. 1 | 16,000 | ||||
| 5,000 shares issued for cash | 10,000 | ||||
| Balance, Dec. 31 | 26,000 | ||||
| Paid in Capital in Excess of Par - Common Stock | |||||
| DR | CR | ||||
| Balance, Jan. 1 | 80,000 | ||||
| 5,000 shares issued for cash | 30,000 | ||||
| Balance, Dec. 31 | 110,000 | ||||
| Bonds Payable | |||||
| DR | CR | ||||
| Balance, Jan. 1 | 150,000 | ||||
| Retired by payment of cash at face amount | 75,000 | ||||
| Balance, Dec. 31 | 75,000 | ||||
| Building | |||||
| DR | CR | ||||
| Balance, Jan. 1 | 200,000 | ||||
| Purchased for cash | 80,000 | ||||
| Balance, Dec. 31 | 280,000 | ||||
| Accumulated Depreciation - Building | |||||
| DR | CR | ||||
| Balance, Jan. 1 | 58,300 | ||||
| Depreciation for the year | 6,200 | ||||
| Balance, Dec. 31 | 64,500 | ||||
| Land | |||||
| DR | CR | ||||
| Balance, Jan. 1 | 125,000 | ||||
| Sold for $72,000 cash | 60,000 | ||||
| Purchased for cash | 30,000 | ||||
| Balance, Dec. 31 | 95,000 | ||||
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