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: (see images) Answer the following questions for the directors: True or false, does the statement of cash flows explains the difference between net income and the change in the cash balance? True or false, investors and management use the statement of cash flows to evaluate a firm's profitability? True or false, the financing activities section of the statement of cash flows includes paying dividends and paying off loans? True or false, the financing activities section of the statement of cash flows reflects the cash flows that affect current assets and liabilities? True or false, buying property, plant and equipment would be considered a cash outflow from financing? True or false, the financing section of the statement of cash flows reflects transactions in the equity accounts and the long-term liability accounts? 7. True or false, suppose Auga Company Ltd just started business and was looking for additional capital in order to purchase a property to build their headquarters. If they found an investor who was willing to sell them land worth $500,000 in exchange for stock in the company, would this transaction be shown in the investing activities section of the statement of cash flows?
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
The directors have asked each student from your accounting course to assist with the needed clarification and have put forward the following financial information:
(see images)
- Answer the following questions for the directors:
- True or false, does the statement of cash flows explains the difference between net income and the change in the cash balance?
- True or false, investors and management use the statement of cash flows to evaluate a firm's profitability?
- True or false, the financing activities section of the statement of cash flows includes paying dividends and paying off loans?
- True or false, the financing activities section of the statement of cash flows reflects the cash flows that affect current assets and liabilities?
- True or false, buying property, plant and equipment would be considered a
cash outflow from financing? - True or false, the financing section of the statement of cash flows reflects transactions in the equity accounts and the long-term liability accounts?
7. True or false, suppose Auga Company Ltd just started business and was looking for additional capital in order to purchase a property to build their headquarters. If they found an investor who was willing to sell them land worth $500,000 in exchange for stock in the company, would this transaction be shown in the investing activities section of the statement of cash flows?
![Auga Company Ltd
Comparative Balance Sheet
December 31, 2021 and 2020
2021
2020 Increase/(Decrease)
Assets
Cash
110,000
300,000
350,000
35,000
215,000
1,200,000
2,210,000
70,000
325,000
280,000
28,000
215,000
980,000
1,898,000
?
Accounts Receivable
?
Supplies
Prepaid expenses
Intangible assets
Equipment, net
Total Assets
?
Liabilities
Accounts payable
250,000
210,000
78,000
602,000
140,000
215,000
98,500
725,000
?
Accrued liabilities
?
Income tax payable
Long-term notes payable
Stockholders' Equity
?
410,000
730,000
Common Stock
330,000
450,000
Retained earnings
?
Treasury stock
Total liabilities and stockholders' equity
(70,000)
2,210,000
(60,500)
1,898,000
?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F620845ba-58f6-46cb-950c-72010bab3024%2F105cec47-4fa0-4da3-a0bc-c95604f6147d%2Fwdwfjwm_processed.png&w=3840&q=75)
![Auga Company Ltd
Income Statement
Year Ended December 31,2021
Revenues and gains:
2,100,000
85,000
Sales revenue
Gain on sale of Equipment
Total revenues and gains
Expenses
Cost of goods sold
Depreciation expense
Other operating expense
Total expenses
2,185,000
900,000
150,000
350,000
1,400,000
785,000
210,000
575,000
Income before income taxes
Income tax expense
Net Income
Notes
Acquisition of Equipment during 2021
540,000
Sale proceeds from sale of Equipment
255,000
Receipt for issuance of notes payable
27,000
Payment for note payable
150,000
Dividend paid
295,000
Book value of equipment sold
170,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F620845ba-58f6-46cb-950c-72010bab3024%2F105cec47-4fa0-4da3-a0bc-c95604f6147d%2Fw3zq318_processed.png&w=3840&q=75)
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