Los Lobos Corp. uses the direct method to prepare its statement of cash flows. Los Lobos's trial balances at December 31, 2020 and 2019, are as follows. December 31 2020 2019 Debits Cash $ 35,000 $ 32,000 Accounts receivable 33,000 30,000 Inventory 31,000 47,000 Property, plant, and equipment 100,000 95,000 Unamortized bond discount 4,500 5,000 Cost of goods sold 250,000 380,000 Selling expenses 141,500 172,000 General and administrative expenses 137,000 151,300 Interest expense 4,300 2,600 Income tax expense 20,400 61,200 $756,700 $976,100 Credits Allowance for doubtful accounts $ 1,300 $ 1,100 Accumulated depreciation—plant assets 16,500 15,000 Accounts payable 25,000 15,500 Income taxes payable 21,000 29,100 Deferred tax liability 5,300 4,600 8% callable bonds payable 45,000 20,000 Common stock 50,000 40,000 Paid-in capital in excess of par 9,100 7,500 Retained earnings 44,700 64,600 Sales revenue 538,800 778,700 $756,700 $976,100 Additional information: Los Lobos purchased $5,000 in equipment during 2020. Los Lobos allocated one-third of its depreciation expense to selling expenses and the remainder to general and administrative expenses. Bad debt expense for 2020 was $5,000, and write-offs of uncollectible accounts totaled $4,800. Instructions Determine what amounts Los Lobos should report in its statement of cash flows for the year ended December 31, 2020, for the following items. Cash collected from customers. Cash paid to suppliers. Cash paid for interest. Cash paid for income taxes. Cash paid for selling expenses.
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.
Los Lobos Corp. uses the direct method to prepare its statement of
| December 31 | |||
| 2020 | 2019 | ||
| Debits | |||
| Cash | $ 35,000 | $ 32,000 | |
| 33,000 | 30,000 | ||
| Inventory | 31,000 | 47,000 | |
| Property, plant, and equipment | 100,000 | 95,000 | |
| Unamortized bond discount | 4,500 | 5,000 | |
| Cost of goods sold | 250,000 | 380,000 | |
| Selling expenses | 141,500 | 172,000 | |
| General and administrative expenses | 137,000 | 151,300 | |
| Interest expense | 4,300 | 2,600 | |
| Income tax expense | 20,400 | 61,200 | |
| $756,700 | $976,100 | ||
| Credits | |||
| Allowance for doubtful accounts | $ 1,300 | $ 1,100 | |
| 16,500 | 15,000 | ||
| Accounts payable | 25,000 | 15,500 | |
| Income taxes payable | 21,000 | 29,100 | |
| 5,300 | 4,600 | ||
| 8% callable bonds payable | 45,000 | 20,000 | |
| Common stock | 50,000 | 40,000 | |
| Paid-in capital in excess of par | 9,100 | 7,500 | |
| 44,700 | 64,600 | ||
| Sales revenue | 538,800 | 778,700 | |
| $756,700 | $976,100 |
Additional information:
- Los Lobos purchased $5,000 in equipment during 2020.
- Los Lobos allocated one-third of its depreciation expense to selling expenses and the remainder to general and administrative expenses.
Bad debt expense for 2020 was $5,000, and write-offs of uncollectible accounts totaled $4,800.
Instructions
Determine what amounts Los Lobos should report in its statement of cash flows for the year ended December 31, 2020, for the following items.
- Cash collected from customers.
- Cash paid to suppliers.
- Cash paid for interest.
- Cash paid for income taxes.
- Cash paid for selling expenses.
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