weet Co. both purchases and constructs various equipment it uses in its operations. The following items for two different types of equipment were recorded in random order during the calendar year 2020. Purchase Cash paid for equipment, including sales tax of $6,100 $128,100 Freight and insurance cost while in transit 2,440 Cost of moving equipment into place at factory 3,782 Wage cost for technicians to test equipment 4,880 Insurance premium paid during first year of operation on this equipment 1,830 Special plumbing fixtures required for new equipment 9,760 Repair cost incurred in first year of operations related to this equipment 1,586 Construction Material and purchased parts (gross cost $244,000; failed to take 2% cash discount) $244,000 Imputed interest on funds used during construction (stock financing) 17,080 Labor costs 231,800 Allocated overhead costs (fixed-$24,400; variable-$36,600) 61,000 Profit on self-construction 36,600 Cost of installing equipment 5,368 Compute the total cost to be capitalized for each of these two pieces of equipment.
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.
weet Co. both purchases and constructs various equipment it uses in its operations. The following items for two different types of equipment were recorded in random order during the calendar year 2020.
| Purchase | ||
|---|---|---|
|
Cash paid for equipment, including sales tax of $6,100
|
$128,100 | |
|
Freight and insurance cost while in transit
|
2,440 | |
|
Cost of moving equipment into place at factory
|
3,782 | |
|
Wage cost for technicians to test equipment
|
4,880 | |
|
Insurance premium paid during first year of operation on this equipment
|
1,830 | |
|
Special plumbing fixtures required for new equipment
|
9,760 | |
|
Repair cost incurred in first year of operations related to this equipment
|
1,586 | |
| Construction | ||
|
Material and purchased parts (gross cost $244,000; failed to take 2% cash discount)
|
$244,000 | |
|
Imputed interest on funds used during construction (stock financing)
|
17,080 | |
|
Labor costs
|
231,800 | |
|
Allocated
|
61,000 | |
|
Profit on self-construction
|
36,600 | |
|
Cost of installing equipment
|
5,368 |
Compute the total cost to be capitalized for each of these two pieces of equipment.
|
Purchase equipment
|
$enter a dollar amount
|
|
|---|---|---|
|
Construction equipment
|
$enter a dollar amount
|
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