The income statement, balance sheets, and additional information for Virtual Gaming Systems are provided. VIRTUAL GAMING SYSTEMS Income Statement For the Year Ended December 31, 2021 Net sales $ 2,600,000 Gain on sale of land 7,000 Total revenues 2,607,000 Expenses: Cost of goods sold $ 1,650,000 Operating expenses 615,000 Depreciation expense 33,000 Interest expense 34,000 Income tax expense 80,000 Total expenses 2,412,000 Net income $ 195,000 VIRTUAL GAMING SYSTEMS Balance Sheets December 31 2021 2020 Assets Current assets: Cash $ 409,500 $ 343,800 Accounts receivable 64,000 80,000 Inventory 160,000 145,000 Prepaid rent 4,600 7,200 Long-term assets: Investments 205,000 110,000 Land 215,000 270,000 Equipment 250,000 220,000 Accumulated depreciation (143,000 ) (110,000 ) Total assets $ 1,165,100 $ 1,066,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 35,000 $ 98,000 Interest payable 5,100 4,000 Income tax payable 25,000 29,000 Long-term liabilities: Notes payable 265,000 235,000 Stockholders' equity: Common stock 460,000 400,000 Retained earnings 375,000 300,000 Total liabilities and stockholders’ equity $ 1,165,100 $ 1,066,000 Additional Information for 2021: Purchase additional investment in stocks for $95,000. Sell land costing $55,000 for $62,000, resulting in a $7,000 gain on sale of land. Purchase $30,000 in equipment by issuing a $30,000 long-term note payable to the seller. No cash is exchanged in the transaction. Declare and pay a cash dividend of $120,000. Issue common stock for $60,000. Required: Prepare the statement of cash flows using the indirect method. Disclose any noncash transactions in an accompanying note. (List cash outflows and any decrease in cash as negative amounts.)
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 11-4B Prepare a statement of cash flows —indirect method (LO11-2, 11-3, 11-4, 11-5)
The income statement,
| VIRTUAL GAMING SYSTEMS Income Statement For the Year Ended December 31, 2021 |
||||||||
| Net sales | $ | 2,600,000 | ||||||
| Gain on sale of land | 7,000 | |||||||
| Total revenues | 2,607,000 | |||||||
| Expenses: | ||||||||
| Cost of goods sold | $ | 1,650,000 | ||||||
| Operating expenses | 615,000 | |||||||
| 33,000 | ||||||||
| Interest expense | 34,000 | |||||||
| Income tax expense | 80,000 | |||||||
| Total expenses | 2,412,000 | |||||||
| Net income | $ | 195,000 | ||||||
| VIRTUAL GAMING SYSTEMS Balance Sheets December 31 |
||||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | 409,500 | $ | 343,800 | ||||
| 64,000 | 80,000 | |||||||
| Inventory | 160,000 | 145,000 | ||||||
| Prepaid rent | 4,600 | 7,200 | ||||||
| Long-term assets: | ||||||||
| Investments | 205,000 | 110,000 | ||||||
| Land | 215,000 | 270,000 | ||||||
| Equipment | 250,000 | 220,000 | ||||||
| (143,000 | ) | (110,000 | ) | |||||
| Total assets | $ | 1,165,100 | $ | 1,066,000 | ||||
| Liabilities and |
||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 35,000 | $ | 98,000 | ||||
| Interest payable | 5,100 | 4,000 | ||||||
| Income tax payable | 25,000 | 29,000 | ||||||
| Long-term liabilities: | ||||||||
| Notes payable | 265,000 | 235,000 | ||||||
| Stockholders' equity: | ||||||||
| Common stock | 460,000 | 400,000 | ||||||
| 375,000 | 300,000 | |||||||
| Total liabilities and stockholders’ equity | $ | 1,165,100 | $ | 1,066,000 | ||||
Additional Information for 2021:
-
Purchase additional investment in stocks for $95,000.
-
Sell land costing $55,000 for $62,000, resulting in a $7,000 gain on sale of land.
-
Purchase $30,000 in equipment by issuing a $30,000 long-term note payable to the seller. No cash is exchanged in the transaction.
-
Declare and pay a cash dividend of $120,000.
-
Issue common stock for $60,000.
Required:
Prepare the statement of cash flows using the indirect method. Disclose any noncash transactions in an accompanying note. (List
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