resented below are the 2024 income statement and comparative balance sheets for Santana Industries. SANTANA INDUSTRIES Income Statement For the Year Ended December 31, 2024 ($ in thousands) Sales revenue $ 16,450 Service revenue 5,600 Total revenue $ 22,050 Operating expenses: Cost of goods sold 8,300 Selling expense 3,500 General and administrative expense 2,600 Total operating expenses 14,400 Operating income 7,650 Interest expense 260 Income before income taxes 7,390 Income tax expense 2,700 Net income $ 4,690 Balance Sheet Information ($ in thousands) December 31, 2024 December 31, 2023 Assets: Cash $ 9,400 $ 3,190 Accounts receivable 4,700 3,300 Inventory 6,200 4,100 Prepaid rent 260 520 Equipment 16,700 14,200 Less: Accumulated depreciation (6,200) (5,600) Total assets $ 31,060 $ 19,710 Liabilities and Shareholders’ Equity: Accounts payable $ 3,600 $ 2,200 Interest payable 210 0 Deferred revenue 1,020 710 Income taxes payable 660 1,020 Notes payable (due 12/31/2026) 7,200 0 Common stock 11,100 11,100 Retained earnings 7,270 4,680 Total liabilities and shareholders' equity $ 31,060 $ 19,710 Additional information for the 2024 fiscal year ($ in thousands): Cash dividends of $2,100 were declared and paid. Equipment costing $6,200 was purchased with cash. Equipment with a book value of $1,600 (cost of $3,700 less accumulated depreciation of $2,100) was sold for $1,600. Depreciation of $2,700 is included in operating expenses. Prepare Santana Industries' 2024 statement of cash flows, using the indirect method to present cash flows from operating activities. Note: Amounts to be deducted should be indicated with a minus sign. Enter your answers in thousands. SANTANA INDUSTRIES Statement of Cash Flows For the Year Ended December 31, 2024 ($ in thousands) Cash flows from operating activities: Net income Adjustments for noncash effects: Depreciation expense Changes in operating assets and liabilities: Increase in accounts receivable Increase in inventory Decrease in prepaid rent Increase in accounts payable Increase in interest payable Increase in deferred revenue Decrease in income taxes payable Net cash flows from operating activities Cash flows from investing activities: Purchase of equipment Sale of equipment Net cash flows from investing activities Cash flows from financing activities: Issuance of notes payable Dividends paid to shareholders Net cash flows from financing activities Net increase in cash Cash, January 1 Cash, December 31
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.
Presented below are the 2024 income statement and comparative balance sheets for Santana Industries.
| SANTANA INDUSTRIES | ||
| Income Statement | ||
| For the Year Ended December 31, 2024 | ||
| ($ in thousands) | ||
| Sales revenue | $ 16,450 | |
|---|---|---|
| Service revenue | 5,600 | |
| Total revenue | $ 22,050 | |
| Operating expenses: | ||
| Cost of goods sold | 8,300 | |
| Selling expense | 3,500 | |
| General and administrative expense | 2,600 | |
| Total operating expenses | 14,400 | |
| Operating income | 7,650 | |
| Interest expense | 260 | |
| Income before income taxes | 7,390 | |
| Income tax expense | 2,700 | |
| Net income | $ 4,690 |
| Balance Sheet Information ($ in thousands) | December 31, 2024 | December 31, 2023 |
|---|---|---|
| Assets: | ||
| Cash | $ 9,400 | $ 3,190 |
| 4,700 | 3,300 | |
| Inventory | 6,200 | 4,100 |
| Prepaid rent | 260 | 520 |
| Equipment | 16,700 | 14,200 |
| Less: |
(6,200) | (5,600) |
| Total assets | $ 31,060 | $ 19,710 |
| Liabilities and Shareholders’ Equity: | ||
| Accounts payable | $ 3,600 | $ 2,200 |
| Interest payable | 210 | 0 |
| Deferred revenue | 1,020 | 710 |
| Income taxes payable | 660 | 1,020 |
| Notes payable (due 12/31/2026) | 7,200 | 0 |
| Common stock | 11,100 | 11,100 |
| 7,270 | 4,680 | |
| Total liabilities and shareholders' equity | $ 31,060 | $ 19,710 |
Additional information for the 2024 fiscal year ($ in thousands):
- Cash dividends of $2,100 were declared and paid.
- Equipment costing $6,200 was purchased with cash.
- Equipment with a book value of $1,600 (cost of $3,700 less accumulated depreciation of $2,100) was sold for $1,600.
- Depreciation of $2,700 is included in operating expenses.
Prepare Santana Industries' 2024 statement of
Note: Amounts to be deducted should be indicated with a minus sign. Enter your answers in thousands.
| SANTANA INDUSTRIES | ||
| Statement of Cash Flows | ||
| For the Year Ended December 31, 2024 | ||
| ($ in thousands) | ||
| Cash flows from operating activities: | ||
| Net income | ||
| Adjustments for noncash effects: | ||
| Depreciation expense | ||
| Changes in operating assets and liabilities: | ||
| Increase in accounts receivable | ||
| Increase in inventory | ||
| Decrease in prepaid rent | ||
| Increase in accounts payable | ||
| Increase in interest payable | ||
| Increase in deferred revenue | ||
| Decrease in income taxes payable | ||
| Net cash flows from operating activities | ||
| Cash flows from investing activities: | ||
| Purchase of equipment | ||
| Sale of equipment | ||
| Net cash flows from investing activities | ||
| Cash flows from financing activities: | ||
| Issuance of notes payable | ||
| Dividends paid to shareholders | ||
| Net cash flows from financing activities | ||
| Net increase in cash | ||
| Cash, January 1 | ||
| Cash, December 31 |
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