Vale, Hamilton and Curtis, Inc. (VHC) (this is the same company in I above) II. began operations on June 1, 2015. As of December 31, 2015, VHC had organization expenses of $207,000 As of January 1, 2018, VHC had accumulated E&P of $470,000 During 2018, VHC had the following items of income and expense: Sales Revenue $750,000 310,000 190,000 Cost of Goods Sold Selling and Administrative Expenses Depreciation (using accelerated methods - straight-line would have been $35,000) Dividends received (15% owned corporations) Interest income from municipal bonds Bribes to foreign governments Net operating loss carryover from 2014 Long term capital gain Long term capital loss Short term capital gain Charitable contributions 60,000 65,000 32,000 45,000 35,000 10,000 5,000 20,000 37,500 16,000 Dividends paid to shareholders Determine VHC's taxable income for 2018 a. b. Determine VHC's Current E&P for 2018
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.
Vale, Hamilton and Curtis, Inc. (VHC) (this is the same company in I above) began operations on June 1, 2015. As of December 31, 2015, VHC had organization expenses of $207,000. As of January 1, 2018, VHC had accumulated E&P of $470,000. During 2018, VHC had the following items of income and expense:
Sales Revenue $750,000
Cost of Goods Sold 310,000
Selling and Administrative Expenses 190,000
Depreciation (using accelerated methods -
straight-line would have been $35,000) 60,000
Dividends received (15% owned corporations) 65,000
Interest income from municipal bonds 32,000
Bribes to foreign governments 45,000
Net operating loss carryover from 2014 35,000
Long term
Long term capital loss 5,000
Short term capital gain 20,000
Charitable contributions 37,500
Dividends paid to shareholders 16,000
a. Determine VHC’s taxable income for 2018
b. Determine VHC’s Current E&P for 2018
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