The balance sheets for Cosmic Company showed the following information. Additional information concerning transactions and events during 2021 are presented below. Cosmic Company Balance Sheet December 31 2021 2020 Cash $ 67,500 $71,000 Accounts receivable (net) 20,000 28,000 Inventory 42,000 35,000 Long-term investments 18,000 10,000 Property, plant & equipment 340,500 270,000 Accumulated depreciation (58,000) (43,000) $430,000 $371,000 Accounts payable $ 30,000 $ 33,000 Accrued liabilities 20,000 15,000 Long-term notes payable 50,000 80,000 Common stock 110,000 120,000 Retained earnings 220,000 123,000 $430,000 $371,000 Additional data: 1. Net income for the year 2021, $98,000. 2. Depreciation on plant assets for the year, $15,000. 3. Sold the long-term investments for $10,000 (assume gain or loss is ordinary). 4. Paid dividends of $10,000. 5. Purchased machinery costing $70,500, paid cash. 7. Paid a $30,000 long-term note payable by issuing common stock. 8. Repurchased $40,000 common stock using cash. Required: Prepare a partial statement which contains cash flows from operating activities using indirect method for 2021 for Cosmic Company. Calculate net cash flows from investing activities for 2021 for Cosmic Company. Calculate net cash flows from financing
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 balance sheets for Cosmic Company showed the following information. Additional information concerning transactions and events during 2021 are presented below.
Cosmic Company
December 31
2021 2020
Cash $ 67,500 $71,000
Inventory 42,000 35,000
Long-term investments 18,000 10,000
Property, plant & equipment 340,500 270,000
$430,000 $371,000
Accounts payable $ 30,000 $ 33,000
Accrued liabilities 20,000 15,000
Long-term notes payable 50,000 80,000
Common stock 110,000 120,000
$430,000 $371,000
Additional data:
1. Net income for the year 2021, $98,000.
2. Depreciation on plant assets for the year, $15,000.
3. Sold the long-term investments for $10,000 (assume gain or loss is ordinary).
4. Paid dividends of $10,000.
5. Purchased machinery costing $70,500, paid cash.
7. Paid a $30,000 long-term note payable by issuing common stock.
8. Repurchased $40,000 common stock using cash.
Required:
- Prepare a partial statement which contains
cash flows from operating activities using indirect method for 2021 for Cosmic Company. - Calculate net cash flows from investing activities for 2021 for Cosmic Company.
- Calculate net cash flows from financing activities for 2021 for Cosmic Company.
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