Van Rushing Hunting Goods’ fiscal year ends on December 31. At the end of the 2018 fiscal year, the companyhad notes payable of $12 million due on February 8, 2019. Rushing sold 2 million shares of its $0.25 par, commonstock on February 3, 2019, for $9 million. The proceeds from that sale along with $3 million from the maturationof some 3-month CDs were used to pay the notes payable on February 8.Through his attorney, one of Rushing’s construction workers notified management on January 5, 2019, that heplanned to sue the company for $1 million related to a work-site injury on December 20, 2018. As of December31, 2018, management had been unaware of the injury, but reached an agreement on February 23, 2019, to settlethe matter by paying the employee’s medical bills of $75,000.Rushing’s financial statements were finalized on March 3, 2019.Required:1. What amount(s) if any, related to the situations described should Rushing report among current liabilities inits balance sheet at December 31, 2018? Why?2. What amount(s) if any, related to the situations described should Rushing report among long-term liabilitiesin its balance sheet at December 31, 2018? Why?3. How would your answers to requirements 1 and 2 differ if the settlement agreement had occurred on March15, 2019, instead? Why?4. How would your answers to requirements 1 and 2 differ if the work-site injury had occurred on January 3,2019, instead? Why?
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.
Van Rushing Hunting Goods’ fiscal year ends on December 31. At the end of the 2018 fiscal year, the company
had notes payable of $12 million due on February 8, 2019. Rushing sold 2 million shares of its $0.25 par, common
stock on February 3, 2019, for $9 million. The proceeds from that sale along with $3 million from the maturation
of some 3-month CDs were used to pay the notes payable on February 8.
Through his attorney, one of Rushing’s construction workers notified management on January 5, 2019, that he
planned to sue the company for $1 million related to a work-site injury on December 20, 2018. As of December
31, 2018, management had been unaware of the injury, but reached an agreement on February 23, 2019, to settle
the matter by paying the employee’s medical bills of $75,000.
Rushing’s financial statements were finalized on March 3, 2019.
Required:
1. What amount(s) if any, related to the situations described should Rushing report among current liabilities in
its
2. What amount(s) if any, related to the situations described should Rushing report among long-term liabilities
in its balance sheet at December 31, 2018? Why?
3. How would your answers to requirements 1 and 2 differ if the settlement agreement had occurred on March
15, 2019, instead? Why?
4. How would your answers to requirements 1 and 2 differ if the work-site injury had occurred on January 3,
2019, instead? Why?
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