Pyramid issued 50,000 $1 par, common shares for $230,000 when the business began, and there have been no changes in paid-in capital since then. Dividends were not paid the first year, but $10,000 cash dividends were paid in both 2020 and 2021, Required: 1. Prepare the journal entry at January 1, 2021, to record the change in accounting principle. 2. Prepare the 2021-2020 comparative income statements beginning with income before income taxes. 3. Prepare the 2021-2020 comparative statements of shareholders' equity. (Hint: The 2019 statements reported retained earnings of $45,000. This is $60.000-($60.000 -25%
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.
Subject: accounting
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The Pyramid Company has used the LIFO method of accounting for inventory during its first two years of operation, 2019 and 2020. At
the beginning of 2021, Pyramid decided to change to the average cost method for both tax and financial reporting purposes. The
following table presents information concerning the change for 2019-2021. The income tax rate for all years is 25%.
2019
2820
Total
2021
Income before Income Tax
Using Average Cost
Using LIFO
Method
$ 90,000
45,000
$135,000
$ 51,000
Method
$60,000
36,000
$96,000
$46,000
Difference
$30,000
9,000
$39,000
$ 5,000
Income
Tax Effect
$7,500
2,250
$9,750
$1,250
Difference
after Tax
$22,500
6,750
$29,250
$3,750
Pyramid issued 50,000 $1 par, common shares for $230,000 when the business began, and there have been no changes in paid-in
capital since then. Dividends were not paid the first year, but $10,000 cash dividends were paid in both 2020 and 2021,
Required:
1. Prepare the journal entry at January 1, 2021, to record the change in accounting principle.
2. Prepare the 2021-2020 comparative income statements beginning with income before income taxes.
3. Prepare the 2021-2020 comparative statements of shareholders' equity. [Hint: The 2019 statements reported retained earnings of
$45,000. This is $60,000 - ($60,000 -25%).]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8fc66754-dc05-453a-a4c8-c79196bcb5d1%2F52f1a003-43bb-4d0b-a182-d06271e26be7%2F8h6lba_processed.jpeg&w=3840&q=75)
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