The 2021 comparative balance sheet and income statement of Auga Company Ltd, have just been distributed at a meeting of the company’s board of directors. The members of the board of directors were desirous of knowing the reason or reasons why the cash balance different from the net income. The company uses the indirect method to prepare the statement of cash flows and it is expected that this should be able to provide the needed clarity required by the directors. The directors have asked each student from your accounting course to assist with the needed clarification and have put forward the following financial information grouped according to your first name initial. Auga Company Ltd Comparative Balance Sheet December 31, 2021 and 2020 2021 2020 Increase/(Decrease) Assets Cash 238,000 138,000 ? Accounts Receivable 325,000 300,000 ? Inventories 280,000 350,000 ? Prepaid expenses 28,000 35,000 ? Intangible assets 328,000 328,000 ? Plant assets, net 1,200,000 980,000 ? Total Assets 2,399,000 2,131,000 Liabilities Accounts payable 180,000 240,000 ? Accrued liabilities 310,000 415,000 ? Income tax payable 105,000 100,000 ? Long-term notes payable 1,350,000 800,000 ? Stockholders' Equity Common Stock 330,000 295,000 ? Retained earnings 450,000 345,500 ? Treasury stock (326,000) (64,500) ? Total liabilities and stockholders' equity 2,399,000 2,131,000 Auga Company Ltd Income Statement Year Ended December 31,2021 Revenues and gains: Sales revenue 2,450,000 Gain on sale of plant assets 103,200 Total revenues and gains 2,553,200 Expenses Cost of goods sold 945,000 Depreciation expense 185,000 Other operating expense 398,500 Total expenses 1,528,500 Income before income taxes 1,024,700 Income tax expense 245,000 Net Income 779,700 Notes Acquisition of plant asset during 2021 610,000 Sale proceeds from sale of plant asset 308,200 Receipt for issuance of notes payable 870,000 Payment for note payable 320,000 Dividend paid 675,200 Book value of equipment sold 205,000 Reconstruct the company’s comparative balance sheet for 2020/2021 using the information in line with your first name initial and compute and show the missing figures to include the appropriate sign as a positive or negative figure. Prepare a complete statement of cash flows for 2021 using the indirect method using the information in line with your first name initial.
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.
The 2021 comparative
The directors have asked each student from your accounting course to assist with the needed clarification and have put forward the following financial information grouped according to your first name initial.
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Auga Company Ltd |
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Comparative Balance Sheet |
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December 31, 2021 and 2020 |
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2021 |
2020 |
Increase/(Decrease) |
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Assets |
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Cash |
238,000 |
138,000 |
? |
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325,000 |
300,000 |
? |
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Inventories |
280,000 |
350,000 |
? |
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Prepaid expenses |
28,000 |
35,000 |
? |
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Intangible assets |
328,000 |
328,000 |
? |
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Plant assets, net |
1,200,000 |
980,000 |
? |
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Total Assets |
2,399,000 |
2,131,000 |
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Liabilities |
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Accounts payable |
180,000 |
240,000 |
? |
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Accrued liabilities |
310,000 |
415,000 |
? |
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Income tax payable |
105,000 |
100,000 |
? |
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Long-term notes payable |
1,350,000 |
800,000 |
? |
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Common Stock |
330,000 |
295,000 |
? |
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450,000 |
345,500 |
? |
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(326,000) |
(64,500) |
? |
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Total liabilities and stockholders' equity |
2,399,000 |
2,131,000 |
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Auga Company Ltd |
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Income Statement |
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Year Ended December 31,2021 |
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Revenues and gains: |
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Sales revenue |
2,450,000 |
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Gain on sale of plant assets |
103,200 |
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Total revenues and gains |
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2,553,200 |
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Expenses |
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Cost of goods sold |
945,000 |
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185,000 |
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Other operating expense |
398,500 |
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Total expenses |
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1,528,500 |
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Income before income taxes |
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1,024,700 |
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Income tax expense |
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245,000 |
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Net Income |
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779,700 |
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Notes |
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Acquisition of plant asset during 2021 |
610,000 |
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Sale proceeds from sale of plant asset |
308,200 |
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Receipt for issuance of notes payable |
870,000 |
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Payment for note payable |
320,000 |
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Dividend paid |
675,200 |
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Book value of equipment sold |
205,000 |
- Reconstruct the company’s comparative balance sheet for 2020/2021 using the information in line with your first name initial and compute and show the missing figures to include the appropriate sign as a positive or negative figure.
- Prepare a complete statement of cash flows for 2021 using the indirect method using the information in line with your first name initial.
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