The income statement and unclassified statement of financial position for Sunland, Inc. follow: SUNLAND, INC. Statement of Financial Position December 31 Assets 2018 2017 Cash $98,400 $47,600 Held for trading investments 130,000 116,000 Accounts receivable 71,000 41,400 Inventory 123,600 93,650 Prepaid expenses 18,000 28,600 Property, plant, and equipment 309,000 282,000 Accumulated depreciation (45,500 ) (53,300 ) Total assets $704,500 $555,950 Liabilities and Shareholders’ Equity Accounts payable $96,000 $77,500 Accrued liabilities 10,800 7,800 Bank loan payable 153,700 191,150 Common shares 200,000 160,000 Retained earnings 244,000 119,500 Total liabilities and shareholders’ equity $704,500 $555,950 SUNLAND, INC. Income Statement Year Ended December 31, 2018 Sales $536,550 Cost of goods sold 188,850 Gross profit 347,700 Operating expenses 116,440 Income from operations 231,260 Other revenues and expenses Unrealized gain on held for trading investments $14,000 Interest expense (4,770 ) 9,230 Income before income tax 240,490 Income tax expense 44,000 Net income $196,490 Additional information: 1. Prepaid expenses and accrued liabilities relate to operating expenses. 2. An unrealized gain on held for trading investments of $14,000 was recorded. 3. New equipment costing $86,000 was purchased for $20,200 cash and a $65,800 long-term bank loan payable. 4. Old equipment having an original cost of $59,000 was sold for $1,000. 5. Accounts payable relate to merchandise creditors. 6. Some of the bank loan was repaid during the year. 7. A dividend was paid during the year. 8. Operating expenses include $47,000 of depreciation expense and a $3,200 loss on disposal of equipment. (a) Prepare the statement of cash flows, using the direct method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).) SUNLAND, INC. Statement of Cash Flows-Direct Method $ Cash Payments $ $ $ $ Note X to the Statement of Cash Flows: During the year, the company purchased equipment costing $________ by paying $20,200 cash and issuing a $65,800 bank loan payable.
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.
| SUNLAND, INC. Statement of Financial Position December 31 |
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| Assets | 2018 | 2017 | |||||
| Cash | $98,400 | $47,600 | |||||
| Held for trading investments | 130,000 | 116,000 | |||||
| 71,000 | 41,400 | ||||||
| Inventory | 123,600 | 93,650 | |||||
| Prepaid expenses | 18,000 | 28,600 | |||||
| Property, plant, and equipment | 309,000 | 282,000 | |||||
| (45,500 | ) | (53,300 | ) | ||||
| Total assets | $704,500 | $555,950 | |||||
| Liabilities and Shareholders’ Equity | |||||||
| Accounts payable | $96,000 | $77,500 | |||||
| Accrued liabilities | 10,800 | 7,800 | |||||
| Bank loan payable | 153,700 | 191,150 | |||||
| Common shares | 200,000 | 160,000 | |||||
| 244,000 | 119,500 | ||||||
| Total liabilities and shareholders’ equity | $704,500 | $555,950 |
| SUNLAND, INC. Income Statement Year Ended December 31, 2018 |
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| Sales | $536,550 | |||||
| Cost of goods sold | 188,850 | |||||
| Gross profit | 347,700 | |||||
| Operating expenses | 116,440 | |||||
| Income from operations | 231,260 | |||||
| Other revenues and expenses | ||||||
| Unrealized gain on held for trading investments | $14,000 | |||||
| Interest expense | (4,770 | ) | 9,230 | |||
| Income before income tax | 240,490 | |||||
| Income tax expense | 44,000 | |||||
| Net income | $196,490 |
Additional information:
| 1. | Prepaid expenses and accrued liabilities relate to operating expenses. | |
| 2. | An unrealized gain on held for trading investments of $14,000 was recorded. | |
| 3. | New equipment costing $86,000 was purchased for $20,200 cash and a $65,800 long-term bank loan payable. | |
| 4. | Old equipment having an original cost of $59,000 was sold for $1,000. | |
| 5. | Accounts payable relate to merchandise creditors. | |
| 6. | Some of the bank loan was repaid during the year. | |
| 7. | A dividend was paid during the year. | |
| 8. | Operating expenses include $47,000 of depreciation expense and a $3,200 loss on disposal of equipment. |
(a)
Prepare the statement of
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SUNLAND, INC.
Statement of Cash Flows-Direct Method |
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Note X to the Statement of Cash Flows: During the year, the company purchased equipment costing $________ by paying $20,200 cash and issuing a $65,800 bank loan payable.
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