Prepare a statement of cash flows in good form assuming that Avatar Company uses the indirect method. Please refer to the following information for the year 2021. Avatar Company Balance Sheet December 31, 2021 2021 2020 Change Cash $21,000 $18,000 $3,000 Accounts receivable 31,000 35,000 (4,000) Inventory 53,000 25,000 28,000 Property, Plant & Equipment (net) 120,000 90,000 30,000 Total assets $225,000 $168,000 $57,000 Accounts payable $4,000 $6,000 $(2,000) Accrued liabilities 2,000 1,000 1,000 Long-term notes payable 84,000 90,000 (6,000) Total liabilities $90,000 $97,000 $(7,000) Common shares $42,000 $17,000 $25,000 Retained earnings 93,000 54,000 39,000 Total equity $135,000 $71,000 $64,000 Total liabilities and equity $225,000 $168,000 $57,000 Avatar Company Income Statement For the Year Ended December 31, 2021 Revenues and gains: Sales revenue $240,000 Interest revenue 1,000 Gain on sale of plant assets 4,000 Total revenues $245,000 Expenses: Cost of goods sold $110,000 Salary expense 45,000 Amortization expense 12,000 Other operating expenses 23,000 Interest expense 1,000 Income tax expense 5,000 Total expenses 196,000 Net income $49,000 Avatar Company Statement of Retained Earnings For the Year Ended December 31, 2021 Retained earnings, January 1, 2021 $54,000 Net income 49,000 Dividends (10,000) Retained earnings, December 31, 2021 $93,000 Additional information provided: • Equipment costing $52,000 was purchased for cash. • Equipment with a net asset value of $10,000 was sold for $14,000 • Amortization expense of $12,000 was recorded during the year. • During 2021, the company repaid $40,000 of long-term notes payable. • During 2021, the company borrowed $34,000 on a new note payable • There were no stock retirements during the year. • There were no sales of treasury stock during the year.
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.
Question 13
Prepare a statement of
Please refer to the following information for the year 2021.
Avatar Company
December 31, 2021
|
|
2021 |
2020 |
Change |
|
Cash |
$21,000 |
$18,000 |
$3,000 |
|
|
31,000 |
35,000 |
(4,000) |
|
Inventory |
53,000 |
25,000 |
28,000 |
|
Property, Plant & Equipment (net) |
120,000 |
90,000 |
30,000 |
|
Total assets |
$225,000 |
$168,000 |
$57,000 |
|
|
|
|
|
|
Accounts payable |
$4,000 |
$6,000 |
$(2,000) |
|
Accrued liabilities |
2,000 |
1,000 |
1,000 |
|
Long-term notes payable |
84,000 |
90,000 |
(6,000) |
|
Total liabilities |
$90,000 |
$97,000 |
$(7,000) |
|
|
|
|
|
|
Common shares |
$42,000 |
$17,000 |
$25,000 |
|
|
93,000 |
54,000 |
39,000 |
|
Total equity |
$135,000 |
$71,000 |
$64,000 |
|
|
|
|
|
|
Total liabilities and equity |
$225,000 |
$168,000 |
$57,000 |
|
|
|
|
|
Avatar Company
Income Statement
For the Year Ended December 31, 2021
|
Revenues and gains: |
|
|
|
Sales revenue |
$240,000 |
|
|
Interest revenue |
1,000 |
|
|
Gain on sale of plant assets |
4,000 |
|
|
Total revenues |
|
$245,000 |
|
Expenses: |
|
|
|
Cost of goods sold |
$110,000 |
|
|
Salary expense |
45,000 |
|
|
Amortization expense |
12,000 |
|
|
Other operating expenses |
23,000 |
|
|
Interest expense |
1,000 |
|
|
Income tax expense |
5,000 |
|
|
Total expenses |
|
196,000 |
|
Net income |
|
$49,000 |
Avatar Company
Statement of Retained Earnings
For the Year Ended December 31, 2021
|
Retained earnings, January 1, 2021 |
$54,000 |
|
Net income |
49,000 |
|
Dividends |
(10,000) |
|
Retained earnings, December 31, 2021 |
$93,000 |
Additional information provided:
• Equipment costing $52,000 was purchased for cash.
• Equipment with a net asset value of $10,000 was sold for $14,000
• Amortization expense of $12,000 was recorded during the year.
• During 2021, the company repaid $40,000 of long-term notes payable.
• During 2021, the company borrowed $34,000 on a new note payable
• There were no stock retirements during the year.
• There were no sales of
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