The following are selected ledger accounts of Spock Corporation at December 31, 2020. Cash $ 185,000 Salaries and wages expense (sales) $284,000 Inventory 535,000 Salaries and wages expense (office) 346,000 Sales revenue 4,275,000 Purchase returns 15,000 Unearned sales revenue 117,000 Sales returns and allowances 79,000 Purchases 2,786,000 Freight-in 72,000 Sales discounts 34,000 Accounts receivable 142,500 Purchase discounts 27,000 Sales commissions 83,000 Selling expenses 69,000 Telephone and Internet expense (sales) 17,000 Accounting and legal services 33,000 Utilities expense (office) 32,000 Insurance expense (office) 24,000 Miscellaneous office expenses 8,000 Advertising expense 54,000 Rent revenue 240,000 Delivery expense 93,000 Casualty loss (before tax) 70,000 Depreciation expense (office equipment) 48,000 Interest expense 176,000 Depreciation expense (sales equipment) 36,000 Common stock ($10 par) 900,000 Spock’s effective tax rate on all items is 20%. A physical inventory indicates that the ending inventory is $686,000. Instructions Prepare a condensed 2020 income statement for Spock Corporation.
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 following are selected ledger accounts of Spock Corporation at December 31, 2020.
| Cash | $ 185,000 | Salaries and wages expense (sales) | $284,000 | |||
| Inventory | 535,000 | Salaries and wages expense (office) | 346,000 | |||
| Sales revenue | 4,275,000 | Purchase returns | 15,000 | |||
| Unearned sales revenue | 117,000 | Sales returns and allowances | 79,000 | |||
| Purchases | 2,786,000 | Freight-in | 72,000 | |||
| Sales discounts | 34,000 | 142,500 | ||||
| Purchase discounts | 27,000 | Sales commissions | 83,000 | |||
| Selling expenses | 69,000 | Telephone and Internet expense (sales) | 17,000 | |||
| Accounting and legal services | 33,000 | Utilities expense (office) | 32,000 | |||
| Insurance expense (office) | 24,000 | Miscellaneous office expenses | 8,000 | |||
| Advertising expense | 54,000 | Rent revenue | 240,000 | |||
| Delivery expense | 93,000 | Casualty loss (before tax) | 70,000 | |||
| 48,000 | Interest expense | 176,000 | ||||
| Depreciation expense (sales equipment) | 36,000 | Common stock ($10 par) | 900,000 |
Spock’s effective tax rate on all items is 20%. A physical inventory indicates that the ending inventory is $686,000.
Instructions
Prepare a condensed 2020 income statement for Spock Corporation.
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