Pharoah Inc., a greeting card company, had the following statements prepared as of December 31, 2020. Cash Accounts receivable Short-term debt investments (available-for-sale) Inventory Prepaid rent Equipment Accumulated depreciation-equipment Copyrights Total assets Accounts payable Income taxes payable PHAROAH INC. COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2020 AND 2019 Salaries and wages payable Short-term loans payable Long-term loans payable Common stock, $10 par Contributed capital, common stock Retained earnings Total liabilities & stockholders' equity Additional information: 1. PHAROAH INC. INCOME STATEMENT FOR THE YEAR ENDING DECEMBER 31, 2020 Sales revenue $339,075 Cost of goods sold 175,000 Gross profit Operating expenses Operating income Interest expense Gain on sale of equipment Income before tax Income tax expense Net income 2. 3. 4. $11,300 2,000 164,075 119.900 44,175 12/31/20 9,300 34,875 6,975 $6,100 62,500 34,800 39,600 $313,900 $27,900 4,900 154,500 (34,800) 46,300 $313,900 $46,000 4,000 8,100 8,000 59,700 100,000 30,000 58,100 12/31/19 $6,900 51,000 18,100 60,200 4,000 130,100 (25,300 ) 50,400 $295,400 $40,200 6,000 4,000 10,000 69,000 100,000 30,000 36,200 $295,400 Dividends in the amount of $6,000 were declared and paid during 2020. Depreciation expense and amortization expense are included in operating expenses. No unrealized gains or losses have occurred on the investments during the year. Equipment that had a cost of $19,900 and was 70% depreciated was sold during 2020. Prepare a statement of cash flows using the direct method. (Show amounts in the investing and financing sections that decrease cash flow with either a-sign e.g.-15,000 or in parenthesis e.g. (15,000).)
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.
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