The management of Banciu Corporation provides you with comparative balance sheets at December 31, 20X1, and December 31, 20X0, appearing below. December 31, 20X1 20X0 Assets Cash $ 174,000 $ 223,200 Accounts receivable 306,000 327,600 Allowance for uncollectible accounts (19,200 ) (20,400 ) Inventories 579,600 645,600 Machinery and equipment 1,112,400 776,400 Accumulated depreciation on machinery and equipment (499,200 ) (446,400 ) Leasehold improvements 104,400 104,400 Accumulated amortization on leasehold improvements (69,600 ) (58,800 ) Securities held for plant expansion 180,000 0 Patents 33,360 36,000 Totals $ 1,901,760 $ 1,587,600 Liabilities and stockholders’ equity Accounts payable $ 279,360 $ 126,000 Dividend payable 48,000 0 Current portion of 6% serial bonds payable 60,000 60,000 6% serial bonds payable—noncurrent portion 300,000 360,000 Preferred stock 108,000 120,000 Common stock 600,000 600,000 Retained earnings 506,400 321,600 Totals $ 1,901,760 $ 1,587,600 Supplemental Information: a. The following table presents a comparative analysis of retained earnings as of December 31, 20X1, and December 31, 20X0. December 31, 20X1 20X0 Beginning balance $ 321,600 $ 157,200 Net income 234,000 206,400 555,600 363,600 Dividends declared (48,000 ) (42,000 ) Premium on repurchased preferred Stock (1,200 ) -0- Ending balance $ 506,400 $ 321,600 b. On December 10, 20X1, the board of directors declared a cash dividend of $0.24 per share, payable to holders of common stock on January 10, 20X2. c Purchased new machinery for $463,000. In addition, Banciu sold certain machinery it was no longer using for $57,600. The machinery cost $127,000 and had accumulated depreciation of $53,800 at the date of the sale. Banciu made no other entries in Machinery and equipment or related accounts other than for depreciation. d. Purchased 120 preferred shares, par value $100, at $110 and subsequently canceled the shares. Banciu debited the premium paid to Retained earnings. e. Paid $2,400 of legal costs in successful defense of a new patent, which it correctly debited to the Patents account. It recorded patent amortization amounting to $5,040 during the year ended December 31, 20X1. f. During 20X1, Banciu wrote off accounts receivable totaling $3,600 as uncollectible. g. During 20X1, Banciu purchased $180,000 of securities that are being held for future plant expansion.
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.
| December 31, | ||||||
| 20X1 | 20X0 | |||||
| Assets | ||||||
| Cash | $ | 174,000 | $ | 223,200 | ||
| 306,000 | 327,600 | |||||
| Allowance for uncollectible accounts | (19,200 | ) | (20,400 | ) | ||
| Inventories | 579,600 | 645,600 | ||||
| Machinery and equipment | 1,112,400 | 776,400 | ||||
| (499,200 | ) | (446,400 | ) | |||
| Leasehold improvements | 104,400 | 104,400 | ||||
| Accumulated amortization on leasehold improvements | (69,600 | ) | (58,800 | ) | ||
| Securities held for plant expansion | 180,000 | 0 | ||||
| Patents | 33,360 | 36,000 | ||||
| Totals | $ | 1,901,760 | $ | 1,587,600 | ||
| Liabilities and |
||||||
| Accounts payable | $ | 279,360 | $ | 126,000 | ||
| Dividend payable | 48,000 | 0 | ||||
| Current portion of 6% serial bonds payable | 60,000 | 60,000 | ||||
| 6% serial bonds payable—noncurrent portion | 300,000 | 360,000 | ||||
| Preferred stock | 108,000 | 120,000 | ||||
| Common stock | 600,000 | 600,000 | ||||
| 506,400 | 321,600 | |||||
| Totals | $ | 1,901,760 | $ | 1,587,600 | ||
Supplemental Information:
a. The following table presents a comparative analysis of retained earnings as of December 31, 20X1, and December 31, 20X0.
| December 31, | |||||||
| 20X1 | 20X0 | ||||||
| Beginning balance | $ | 321,600 | $ | 157,200 | |||
| Net income | 234,000 | 206,400 | |||||
| 555,600 | 363,600 | ||||||
| Dividends declared | (48,000 | ) | (42,000 | ) | |||
| Premium on repurchased preferred Stock | (1,200 | ) | -0- | ||||
|
Ending balance |
$ | 506,400 | $ | 321,600 | |||
b. On December 10, 20X1, the board of directors declared a cash dividend of $0.24 per share, payable to holders of common stock on January 10, 20X2.
c Purchased new machinery for $463,000. In addition, Banciu sold certain machinery it was no longer using for $57,600. The machinery cost $127,000 and had accumulated depreciation of $53,800 at the date of the sale. Banciu made no other entries in Machinery and equipment or related accounts other than for depreciation.
d. Purchased 120
e. Paid $2,400 of legal costs in successful defense of a new patent, which it correctly debited to the Patents account. It recorded patent amortization amounting to $5,040 during the year ended December 31, 20X1.
f. During 20X1, Banciu wrote off accounts receivable totaling $3,600 as uncollectible.
g. During 20X1, Banciu purchased $180,000 of securities that are being held for future plant expansion.
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