Requirement 1. Prepare Modern's income statement for the year ended December 31, 2021. Use the single-step format, with all revenues listed together and all expenses together. Modern Motors, Inc. Income Statement Year Ended December 31, 2021 Revenue: Expenses: Requirements 1. 2. 3. Prepare Modern's income statement for the year ended December 31, 2021. Use the single-step format, with all revenues listed together and all expenses together. Prepare Modern's balance sheet at December 31, 2021. Prepare Modern's statement of cash flows for the year ended December 31, 2021. Format cash flows from operating activities using the indirect method. More info On January 1, 2021, Modem issued its common stock for $430,000. Early in January, Modern made the following cash payments: a. $160,000 for equipment b. $234,000 for inventory (six cars at $39,000 each) c. $18,000 for 2021 rent on a store building In February, Modern purchased four cars for inventory on account. The cost of this Inventory was $192,000 ($48,000 per car). Before year-end, the company paid off $96,000 of this debt. The company uses the first-in, first-out (FIFO) method to account for its inventory. During 2021, Modern sold seven autos for a total of $504,000. Before year-end, it had collected 40% of this amount. The business employs two people. The combined annual payroll is $60,000, of which Modern owes $7,000 at year-end. At the end of the year, the company paid income taxes of $22,000. Late in 2021, Modern declared and paid cash dividends of $13,000. For equipment, Modern uses the straight-line depreciation method, over five years, with zero residual value. Print Done
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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