The following balances were taken from the books of Pronghorn Limited on December 31, 2020: Interest income $86,000 Accumulated depreciation—equipment $50,000 Cash 54,000 Accumulated depreciation—buildings 32,000 Sales revenue 1,400,000 Notes receivable 156,000 Accounts receivable 150,000 Selling expenses 191,000 Prepaid insurance 25,000 Accounts payable 168,000 Sales returns and allowances 146,000 Bonds payable 101,000 Allowance for doubtful accounts 7,000 Administrative expenses 97,000 Sales discounts 46,000 Unearned revenue 29,000 Land 100,000 Interest expense 40,000 Equipment 200,000 Notes payable 100,000 Building 150,000 Loss from storm damage 152,000 Cost of goods sold 614,000 Depreciation expense 40,000 Assume the total effective tax rate on all items is 20%. Prepare a multiple-step income statement showing expenses by function. Assume that 100,000common shares were outstanding during the year. Include calculation of E
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 balances were taken from the books of Pronghorn Limited on December 31, 2020:
|
Interest income
|
$86,000 |
|
$50,000 | |||
|---|---|---|---|---|---|---|
|
Cash
|
54,000 |
Accumulated depreciation—buildings
|
32,000 | |||
|
Sales revenue
|
1,400,000 |
Notes receivable
|
156,000 | |||
|
|
150,000 |
Selling expenses
|
191,000 | |||
|
Prepaid insurance
|
25,000 |
Accounts payable
|
168,000 | |||
|
Sales returns and allowances
|
146,000 |
Bonds payable
|
101,000 | |||
|
Allowance for doubtful accounts
|
7,000 |
Administrative expenses
|
97,000 | |||
|
Sales discounts
|
46,000 |
Unearned revenue
|
29,000 | |||
|
Land
|
100,000 |
Interest expense
|
40,000 | |||
|
Equipment
|
200,000 |
Notes payable
|
100,000 | |||
|
Building
|
150,000 |
Loss from storm damage
|
152,000 | |||
|
Cost of goods sold
|
614,000 |
Depreciation expense
|
40,000 |
Assume the total effective tax rate on all items is 20%.
Prepare a multiple-step income statement showing expenses by function. Assume that 100,000common shares were outstanding during the year. Include calculation of EPS. Pronghorn Limited follows ASPE but decides to disclose EPS on its income statement.(Round per share answer to 2 decimal places, e.g. 52.74.)
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