Using the financial statements and notes provided below, prepare a cash flow analysis for the Penelope Company for 2019. Penelope Company Income Statement For the Year Ended December 31, 2019 $2,467,000 1,285, 000 1,182,000 Revenues Cost of Goods Sold Gross Margin Operating Expenses: Selling Expenses Administrative Expenses Depreciation Total Operating Expenses Operating Income 230,000 94,000 15,000 339,000 843,000 Other Items: Loss on Sale of Patent (11,000) (42,000) (53,000) 790,000 316,000 $474,000 Interest Expense Other Items Net Income Before Taxes Тахes Net Income After Taxes A review of the notes to the financial statements revealed the following information: 1. Dividends of $210,000 were declared and paid during the year. 2. Selling Expenses include charges of $10,000 for the amortization of trademarks. 3. During 2019 the company sold the only patent that had been reflected on its balance sheet at the beginning of the year. Hint: Consider the beginning balance in the Patent account and the loss on the sale in entering a figure on the cash flow statement. 4. The total depreciation reflected on the income statement amounted to $87,000. Factory-related depreciation of $72,000 is included within cost of goods sold.
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.
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