The comparative balance sheet of Coulson, Inc. at December 31, 20Y2 and 20Y1, is as follows: Dec. 31, 20Y2 Dec. 31, 20Y1 Assets Cash $300,600 $337,800 Accounts receivable (net) 704,400 609,600 Inventories 918,600 865,800 Prepaid expenses 18,600 26,400 Land 990,000 1,386,000 Buildings 1,980,000 990,000 Accumulated depreciation—buildings (397,200) (366,000) Equipment 660,600 529,800 Accumulated depreciation—equipment (133,200) (162,000) Total assets $5,042,400 $4,217,400 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors) $594,000 $631,200 Income taxes payable 26,400 21,600 Bonds payable 330,000 0 Common stock, $20 par 320,000 180,000 Paid-in capital in excess of par—common stock 950,000 810,000 Retained earnings 2,822,000 2,574,600 Total liabilities and stockholders' equity $5,042,400 $4,217,400 The noncurrent asset, noncurrent liability, and stockholders’ equity accounts for 20Y2 are as follows: ACCOUNT Land ACCOUNT NO. Balance Date Item Debit Credit Debit Credit 20Y2 Jan. 1 Balance 1,386,000 Apr. 20 Realized $456,000 cash from sale 396,000 990,000 ACCOUNT Buildings ACCOUNT NO. Balance Date Item Debit Credit Debit Credit 20Y2 Jan. 1 Balance 990,000 Apr. 20 Acquired for cash 990,000 1,980,000 ACCOUNT Accumulated Depreciation—Buildings ACCOUNT NO. Balance Date Item Debit Credit Debit Credit 20Y2 Jan. 1 Balance 366,000 Dec. 31 Depreciation for year 31,200 397,200 ACCOUNT Equipment ACCOUNT NO. Balance Date Item Debit Credit Debit Credit 20Y2 Jan. 1 Balance 529,800 26 Discarded, no salvage 66,000 463,800 Aug. 11 Purchased for cash 196,800 660,600 ACCOUNT Accumulated Depreciation-Equipment ACCOUNT NO. Balance Date Item Debit Credit Debit Credit 20Y2 Jan. 1 Balance 162,000 26 Equipment discarded 66,000 96,000 Dec. 31 Depreciation for year 37,200 133,200 ACCOUNT Bonds Payable ACCOUNT NO. Balance Date Item Debit Credit Debit Credit 20Y2 May 1 Issued 20-year bonds 330,000 330,000 ACCOUNT Common Stock, $20 par ACCOUNT NO. Balance Date Item Debit Credit Debit Credit 20Y2 Jan. 1 Balance 180,000 Dec. 7 Issued 7,000 shares of common stock for $40 per share 140,000 320,000 ACCOUNT Paid-in Capital in Excess of Par—Common Stock ACCOUNT NO. Balance Date Item Debit Credit Debit Credit 20Y2 Jan. 1 Balance 810,000 Dec. 7 Issued 7,000 shares of common stock for $40 per share 140,000 950,000 ACCOUNT Retained Earnings ACCOUNT NO. Balance Date Item Debit Credit Debit Credit 20Y2 Jan. 1 Balance 2,574,600 Dec. 31 Net income 326,600 2,901,200 31 Cash dividends 79,200 2,822,000 Required: Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments.
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 comparative balance sheet of Coulson, Inc. at December 31, 20Y2 and 20Y1, is as follows:
| Dec. 31, 20Y2 | Dec. 31, 20Y1 | ||||
| Assets | |||||
| Cash | $300,600 | $337,800 | |||
| Accounts receivable (net) | 704,400 | 609,600 | |||
| Inventories | 918,600 | 865,800 | |||
| Prepaid expenses | 18,600 | 26,400 | |||
| Land | 990,000 | 1,386,000 | |||
| Buildings | 1,980,000 | 990,000 | |||
| (397,200) | (366,000) | ||||
| Equipment | 660,600 | 529,800 | |||
| Accumulated depreciation—equipment | (133,200) | (162,000) | |||
| Total assets | $5,042,400 | $4,217,400 | |||
| Liabilities and |
|||||
| Accounts payable (merchandise creditors) | $594,000 | $631,200 | |||
| Income taxes payable | 26,400 | 21,600 | |||
| Bonds payable | 330,000 | 0 | |||
| Common stock, $20 par | 320,000 | 180,000 | |||
| Paid-in capital in excess of par—common stock | 950,000 | 810,000 | |||
| 2,822,000 | 2,574,600 | ||||
| Total liabilities and stockholders' equity | $5,042,400 | $4,217,400 |
The noncurrent asset, noncurrent liability, and stockholders’ equity accounts for 20Y2 are as follows:
| ACCOUNT Land | ACCOUNT NO. | ||||
| Balance | |||||
| Date | Item | Debit | Credit | Debit | Credit |
| 20Y2 | |||||
| Jan. 1 | Balance | 1,386,000 | |||
| Apr. 20 | Realized $456,000 cash from sale | 396,000 | 990,000 |
| ACCOUNT Buildings | ACCOUNT NO. | ||||
| Balance | |||||
| Date | Item | Debit | Credit | Debit | Credit |
| 20Y2 | |||||
| Jan. 1 | Balance | 990,000 | |||
| Apr. 20 | Acquired for cash | 990,000 | 1,980,000 |
| ACCOUNT Accumulated Depreciation—Buildings | ACCOUNT NO. | ||||
| Balance | |||||
| Date | Item | Debit | Credit | Debit | Credit |
| 20Y2 | |||||
| Jan. 1 | Balance | 366,000 | |||
| Dec. 31 | Depreciation for year | 31,200 | 397,200 |
| ACCOUNT Equipment | ACCOUNT NO. | ||||
| Balance | |||||
| Date | Item | Debit | Credit | Debit | Credit |
| 20Y2 | |||||
| Jan. 1 | Balance | 529,800 | |||
| 26 | Discarded, no salvage | 66,000 | 463,800 | ||
| Aug. 11 | Purchased for cash | 196,800 | 660,600 |
| ACCOUNT Accumulated Depreciation-Equipment | ACCOUNT NO. | ||||
| Balance | |||||
| Date | Item | Debit | Credit | Debit | Credit |
| 20Y2 | |||||
| Jan. 1 | Balance | 162,000 | |||
| 26 | Equipment discarded | 66,000 | 96,000 | ||
| Dec. 31 | Depreciation for year | 37,200 | 133,200 |
| ACCOUNT Bonds Payable | ACCOUNT NO. | ||||
| Balance | |||||
| Date | Item | Debit | Credit | Debit | Credit |
| 20Y2 | |||||
| May 1 | Issued 20-year bonds | 330,000 | 330,000 |
| ACCOUNT Common Stock, $20 par | ACCOUNT NO. | ||||
| Balance | |||||
| Date | Item | Debit | Credit | Debit | Credit |
| 20Y2 | |||||
| Jan. 1 | Balance | 180,000 | |||
| Dec. 7 | Issued 7,000 shares of common stock for $40 per share |
140,000 | 320,000 |
| ACCOUNT Paid-in Capital in Excess of Par—Common Stock | ACCOUNT NO. | ||||
| Balance | |||||
| Date | Item | Debit | Credit | Debit | Credit |
| 20Y2 | |||||
| Jan. 1 | Balance | 810,000 | |||
| Dec. 7 | Issued 7,000 shares of common stock for $40 per share |
140,000 | 950,000 |
| ACCOUNT Retained Earnings | ACCOUNT NO. | ||||
| Balance | |||||
| Date | Item | Debit | Credit | Debit | Credit |
| 20Y2 | |||||
| Jan. 1 | Balance | 2,574,600 | |||
| Dec. 31 | Net income | 326,600 | 2,901,200 | ||
| 31 | Cash dividends | 79,200 | 2,822,000 |
Required:
Prepare a statement of
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