[The following information applies to the questions displayed below.] Portions of the financial statements for Hawkeye Company are provided below. HAWKEYE COMPANY Income Statement For the Year Ended December 31, 2021 ($ in millions) Sales $ 950 Cost of goods sold 375 Gross margin 575 Operating expenses: Salaries $ 237 Depreciation 195 Loss on sale of land 14 Total operating expenses 446 Operating income 129 Other income (expense): Gain on sale of cash equivalents 4 Interest expense (45 ) Income before tax 88 Income tax expense 44 Net income $ 44 HAWKEYE COMPANY Selected Accounts from Comparative Balance Sheets December 31, 2021 and 2020 ($ in millions) Year 2021 2020 Change Cash $ 222 $ 205 $ 17 Accounts receivable 400 431 (31 ) Inventory 870 855 15 Accounts payable 215 244 (29 ) Salaries payable 185 198 (13 ) Interest payable 65 55 10 Income tax payable 95 114 (19 ) Problem 21-9 (Algo) Part 2 Required: 2. Prepare the cash flows from operating activities section of the statement of cash flows for Hawkeye Company using the indirect method. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10). Amounts to be deducted should be indicated with a minus sign.)
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.
Problem 21-9 (Algo) Cash flows from operating activities (direct method and indirect method)—cash equivalent [LO21-3, 21-4]
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[The following information applies to the questions displayed below.]
Portions of the financial statements for Hawkeye Company are provided below.
| HAWKEYE COMPANY | |||||||
| Income Statement | |||||||
| For the Year Ended December 31, 2021 | |||||||
| ($ in millions) | |||||||
| Sales | $ | 950 | |||||
| Cost of goods sold | 375 | ||||||
| Gross margin | 575 | ||||||
| Operating expenses: | |||||||
| Salaries | $ | 237 | |||||
| 195 | |||||||
| Loss on sale of land | 14 | ||||||
| Total operating expenses | 446 | ||||||
| Operating income | 129 | ||||||
| Other income (expense): | |||||||
| Gain on sale of cash equivalents | 4 | ||||||
| Interest expense | (45 | ) | |||||
| Income before tax | 88 | ||||||
| Income tax expense | 44 | ||||||
| Net income | $ | 44 | |||||
| HAWKEYE COMPANY | |||||||||
| Selected Accounts from Comparative |
|||||||||
| December 31, 2021 and 2020 ($ in millions) |
|||||||||
| Year | |||||||||
| 2021 | 2020 | Change | |||||||
| Cash | $ | 222 | $ | 205 | $ | 17 | |||
| 400 | 431 | (31 | ) | ||||||
| Inventory | 870 | 855 | 15 | ||||||
| Accounts payable | 215 | 244 | (29 | ) | |||||
| Salaries payable | 185 | 198 | (13 | ) | |||||
| Interest payable | 65 | 55 | 10 | ||||||
| Income tax payable | 95 | 114 | (19 | ) | |||||
Problem 21-9 (Algo) Part 2
Required:
2. Prepare the cash flows from operating activities section of the statement of cash flows for Hawkeye Company using the indirect method. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10). Amounts to be deducted should be indicated with a minus sign.)
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