Mills Company prepared the following balance sheet at the beginning of 2016: Balance Sheet January 1, 2016 Assets Liabilities and Shareholders' Equity Cash $ 1,000 Accounts payable $ 4,000 Accounts receivable (net) 3,900 Salaries payable 1,100 Inventory 4,700 Total Liabilities $ 5,100 Land 9,800 Common stock, $10 par 13,500 Buildings and equipment 68,900 Additional paid-in capital 11,200 Less: Accumulated depreciation (14,100) Retained earnings 44,400 Total Assets $ 74,200 Total Liabilities and Shareholders' Equity $74,200 At the end of 2016, Mills prepared the following statement of cash flows: Statement of Cash Flows For Year Ended December 31, 2016 Operating Activities: Net income $ 5,400 Adjustments for differences between income flows and cash flows from operating activities: Add: Depreciation expense 1,900 Decrease in inventory 500 Increase in salaries payable 400 Less: Increase in accounts receivable (net) (1,100) Decrease in accounts payable (1,000) Net cash provided by operating activities $ 6,100 Investing Activities: Payment for purchase of building $(13,900) Receipt from sale of land 3,000 Net cash used for investing activities (10,900) Financing Activities Payment of dividends $ (3,100) Receipt from issuance of bonds 5,700 Receipt from issuance of common stock 4,500 Net cash provided by financing activities 7,100 Net increase in cash $ 2,300 Cash, January 1, 2016 1,000 Cash, December 31, 2016 $ 3,300 Additional information related to the statement of cash flows: The long-term bonds have a face value of $6,000 and were issued on December 31, 2016. The building was purchased on December 30, 2016. The land was sold at its original cost. The common stock which was sold totaled 300 shares and had a par value of $10 per share. Required: Prepare a classified balance sheet for the Mills Company as of December 31, 2016. (Hint: Review the information on the statement of cash flows and the balances in the beginning balance sheet accounts to determine the impact on the ending balance sheet accounts.)
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.
Comprehensive:
Mills Company prepared the following balance sheet at the beginning of 2016:
| Balance Sheet January 1, 2016 |
||||
| Assets | Liabilities and Shareholders' Equity | |||
| Cash | $ 1,000 | Accounts payable | $ 4,000 | |
| 3,900 | Salaries payable | 1,100 | ||
| Inventory | 4,700 | Total Liabilities | $ 5,100 | |
| Land | 9,800 | Common stock, $10 par | 13,500 | |
| Buildings and equipment | 68,900 | Additional paid-in capital | 11,200 | |
| Less: |
(14,100) | 44,400 | ||
| Total Assets | $ 74,200 | Total Liabilities and Shareholders' Equity | $74,200 |
At the end of 2016, Mills prepared the following statement of cash flows:
| Statement of Cash Flows For Year Ended December 31, 2016 |
||
| Operating Activities: | ||
| Net income | $ 5,400 | |
| Adjustments for differences between income flows and cash flows from operating activities: |
||
| Add: Depreciation expense | 1,900 | |
| Decrease in inventory | 500 | |
| Increase in salaries payable | 400 | |
| Less: Increase in accounts receivable (net) | (1,100) | |
| Decrease in accounts payable | (1,000) | |
| Net cash provided by operating activities | $ 6,100 | |
| Investing Activities: | ||
| Payment for purchase of building | $(13,900) | |
| Receipt from sale of land | 3,000 | |
| Net cash used for investing activities | (10,900) | |
| Financing Activities | ||
| Payment of dividends | $ (3,100) | |
| Receipt from issuance of bonds | 5,700 | |
| Receipt from issuance of common stock | 4,500 | |
| Net cash provided by financing activities | 7,100 | |
| Net increase in cash | $ 2,300 | |
| Cash, January 1, 2016 | 1,000 | |
| Cash, December 31, 2016 | $ 3,300 |
Additional information related to the statement of cash flows:
- The long-term bonds have a face value of $6,000 and were issued on December 31, 2016.
- The building was purchased on December 30, 2016.
- The land was sold at its original cost.
- The common stock which was sold totaled 300 shares and had a par value of $10 per share.
Required:
Prepare a classified balance sheet for the Mills Company as of December 31, 2016. (Hint: Review the information on the statement of cash flows and the balances in the beginning balance sheet accounts to determine the impact on the ending balance sheet accounts.)
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