Prepare a COMPLETE statement of cash flows for G. Be sure to label your section answers as provided by OR used in. Also, prepare any necessary footnote information/schedule G must present.
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.
G’s balance sheets for 2020 & 2021 and income statement for 2021 follow:
2020 2021
Cash $500,000 $800,000
Receivables from customers, net 600,000 600,000
Plant assets 2,800,000 2,902,583
$3,000,000 $3,300,000
Accounts payable and other accrued liabilities 215,000 200,223
Defined benefit pension obligation 125,000 115,000
Lease liability 0 86,777
Common stock ($1 par value) 100,000 100,000
Additional paid-in-capital, common stock 677,000 677,000
Other comprehensive income 15,000 20,000
$3,000,000 $3,300,000
Sales 2,950,000
Operating expenses 2,659,000
Income before taxes 291,000
Income tax expense 58,000
Net income $233,000
Additional information for G follows:
- During 2021, G neither purchased nor sold any plant assets.
- G’s plant assets caption on its
balance sheet includes G’s right-of-use leased assets. - On 01-01-21, G leased a machine with a useful life of 4 years. The noncancelable lease agreement required G to make 3 annual lease payments of $50,000 starting 01-01-21. After making the last lease payment, G will retain the machine. G’s borrowing rate on 01-01-21 was 10%. G’s interest expense on its lease is included in the operating expenses caption on its income statement. As of 12-31-21, G’s accrued interest payable on the lease is included in G’s accounts payable and other accrued liabilities caption on its balance sheet.
- G has a defined benefit pension plan. During 2021, G recorded $78,000 of pension expense. G’s pension expense is included in the operating expenses caption on its income statement. During 2021 G made a cash contribution to the pension plan. G’s other comprehensive income caption on its balance sheet relates solely to its other comprehensive income – gain/loss on its defined benefit pension plan.
- During 2021, G did not declare or pay dividends on its common stock.
- G uses the direct method and separates its receipts into receipts:
- From customers
- G uses the direct method and separates its payments into payments:
- For other operating expenses
- For income taxes.
Prepare a COMPLETE statement of
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