Matthias Medical manufactures hospital beds and other institutional furniture. The company’s comparative balance sheet and income statement for 2019 and 2020 follow. Matthias Medical Comparative Balance Sheet As of December 31 2020 2019 Assets Current assets Cash $397,220 $417,400 Accounts receivable, net 906,800 776,400 Inventory 743,000 681,000 Other current assets 381,300 247,000 Total current assets 2,428,320 2,121,800 Property, plant, & equipment, net 8,678,000 8,440,100 Total assets $11,106,320 $10,561,900 Liabilities and Stockholders’ Equity Current liabilities $2,934,700 $2,846,000 Long-term debt 3,700,600 3,892,600 Total liabilities 6,635,300 6,738,600 Preferred stock, $5 par value 58,900 58,900 Common stock, $0.25 par value 104,600 103,800 Retained earnings 4,307,520 3,660,600 Total stockholders’ equity 4,471,020 3,823,300 Total liabilities and stockholders’ equity $11,106,320 $10,561,900 Matthias Medical Comparative Income Statement and Statement of Retained Earnings For the Year 2020 2019 Sales revenue (all on account) $10,177,200 $9,613,900 Cost of goods sold 5,411,800 5,298,700 Gross profit 4,765,400 4,315,200 Operating expenses 2,899,900 2,634,100 Net operating income 1,865,500 1,681,100 Interest expense 300,300 308,600 Net income before taxes 1,565,200 1,372,500 Income taxes (30%) 469,560 411,750 Net income $1,095,640 $960,750 Dividends paid Preferred dividends 29,450 29,450 Common dividends 419,270 413,000 Total dividends paid 448,720 442,450 Net income retained 646,920 518,300 Retained earnings, beginning of year 3,660,600 3,142,300 Retained earnings, end of year $4,307,520 $3,660,600 a. Working capital $ b. Current ratio c. Acid-test ratio d. Accounts receivable turnover times
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.
| Matthias Medical Comparative Balance Sheet As of December 31 |
|||||
| 2020 | 2019 | ||||
| Assets | |||||
| Current assets | |||||
| Cash | $397,220 | $417,400 | |||
| |
906,800 | 776,400 | |||
| Inventory | 743,000 | 681,000 | |||
| Other current assets | 381,300 | 247,000 | |||
| Total current assets | 2,428,320 | 2,121,800 | |||
| Property, plant, & equipment, net | 8,678,000 | 8,440,100 | |||
| Total assets | $11,106,320 | $10,561,900 | |||
| Liabilities and |
|||||
| Current liabilities | $2,934,700 | $2,846,000 | |||
| Long-term debt | 3,700,600 | 3,892,600 | |||
| Total liabilities | 6,635,300 | 6,738,600 | |||
| 58,900 | 58,900 | ||||
| Common stock, $0.25 par value | 104,600 | 103,800 | |||
| 4,307,520 | 3,660,600 | ||||
| Total stockholders’ equity | 4,471,020 | 3,823,300 | |||
| Total liabilities and stockholders’ equity | $11,106,320 | $10,561,900 |
| Matthias Medical Comparative Income Statement and Statement of Retained Earnings For the Year |
|||||
| 2020 | 2019 | ||||
| Sales revenue (all on account) | $10,177,200 | $9,613,900 | |||
| Cost of goods sold | 5,411,800 | 5,298,700 | |||
| Gross profit | 4,765,400 | 4,315,200 | |||
| Operating expenses | 2,899,900 | 2,634,100 | |||
| Net operating income | 1,865,500 | 1,681,100 | |||
| Interest expense | 300,300 | 308,600 | |||
| Net income before taxes | 1,565,200 | 1,372,500 | |||
| Income taxes (30%) | 469,560 | 411,750 | |||
| Net income | $1,095,640 | $960,750 | |||
| Dividends paid | |||||
| Preferred dividends | 29,450 | 29,450 | |||
| Common dividends | 419,270 | 413,000 | |||
| Total dividends paid | 448,720 | 442,450 | |||
| Net income retained | 646,920 | 518,300 | |||
| Retained earnings, beginning of year | 3,660,600 | 3,142,300 | |||
| Retained earnings, end of year | $4,307,520 | $3,660,600 |
| a. | $ | |||
| b. | ||||
| c. | Acid-test ratio | |||
| d. | Accounts receivable turnover | times |
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