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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

No handwriting. Kindly show all working so when I work it out on my own, I would know how we both arrived at the answers we did if any of the answer differ.

Requirements

1. Answer the following questions for the directors:

A. True or false, does the statement of cash flows explains the difference between net income and the change in the cash balance?

B. True or false, investors and management use the statement of cash flows to evaluate a firm's profitability?

C. True or false, the financing activities section of the statement of cash flows includes paying dividends and paying off loans?

D. True or false, the financing activities section of the statement of cash flows reflects the cash flows that affect current assets and liabilities?

E. True or false, buying property, plant and equipment would be considered a cash outflow from financing?

F. True or false, the financing section of the statement of cash flows reflects transactions in the equity accounts and the long-term liability accounts?

G. True or false, suppose Auga Company Ltd just started business and was looking for additional capital in order to purchase a property to build their headquarters. If they found an investor who was willing to sell them land worth $500,000 in exchange for stock in the company, would this transaction be shown in the investing activities section of the statement of cash flows?

2. Reconstruct the company’s comparative balance sheet for 2020/2021 using the information and compute and show the missing figures to include the appropriate sign as a positive or negative figure.

3. Prepare a complete statement of cash flows for 2021 using the indirect method using the information.

Auga Company Ltd
Income Statement
Year Ended December 31,2021
Revenues and gains:
Sales revenue
2,450,000
Gain on sale of plant assets
Total revenues and gains
Expenses
Cost of goods sold
Depreciation expense
Other operating expense
Total expenses
103,200
2,553,200
945,000
185,000
398,500
Income before income taxes
Income tax expense
1,528,500
1,024,700
245,000
Net Income
779,700
Notes
Acquisition of plant asset during 2021
610,000
Sale proceeds from sale of plant asset
308,200
Receipt for issuance of notes payable
870,000
Payment for note payable
320,000
Dividend paid
675,200
Book value of equipment sold
205,000

Auga Company Ltd
Comparative Balance Sheet
December 31, 2021 and 2020
2021
2020 Increase/(Decrease)
Assets
Cash
238,000
138,000
?
300,000
350,000
Accounts Receivable
325,000
280,000
?
Inventories
Prepaid expenses
Intangible assets
Plant assets, net
28,000
328,000
35,000
328,000
?
?
1,200,000
2,399,000
980,000
2,131,000
?
Total Assets
Liabilities
Accounts payable
180,000
310,000
240,000
415,000
?
Accrued liabilities
?
Income tax payable
Long-term notes payable
Stockholders' Equity
105,000
100,000
?
1,350,000
800,000
?
Common Stock
330,000
295,000
?
Retained earnings
450,000
345,500
?
Treasury stock
Total liabilities and stockholders' equity
(326,000)
2,399,000
(64,500)
2,131,000
?

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