XYZ Corp. is selling furniture. The comparative balance sheet and income statement are summarized below. You are also given the following additional information:(see detail as attachements) Requirement: Prepare the statement of cash flows using the indirect method for the year ended December 31, current year. Prepare the Cash Flow from Operating Activities (CFO) using the direct method. Based on the cash flow statement, write a short paragraph explaining the major sources and uses of cash by XYZ Corp during the current year.
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.
XYZ Corp. is selling furniture. The comparative
Requirement:
- Prepare the statement of
cash flows using the indirect method for the year ended December 31, current year. - Prepare the Cash Flow from Operating Activities (CFO) using the direct method.
- Based on the cash flow statement, write a short paragraph explaining the major sources and uses of cash by XYZ Corp during the current year.
![Current Year
Prior Year
Balance sheet at December 31
Cash
$ 73,250
$ 63,500
Accounts receivable
15,250
21,350
Merchandise inventory
23,450
18,000
Property and equipment
209,250
160,350
Less: Accumulated depreciation
(57,450)
(45,750)
$263,750
$217,450
Accounts payable
$ 16,500
$ 19,000
Wages payable
2,000
2,700
Note payable, long-term
56,300
71,000
Common stock and additional paid-in capital
103,950
65,900
Retained earnings
85,000
58,850
$263,750
$217,450
Income statement for current year
Sales
$205,000
Cost of goods sold
123,500
Depreciation expense
11,700
Other expenses
43,000
Net income
$ 26,800](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9f50a71f-8223-44c7-add6-dd8242c61e46%2Fc3ee5faa-a04c-456b-8c8c-e9788cbb18bc%2Fef257oj_processed.png&w=3840&q=75)
![a. Bought equipment for cash, $48,900.
b. Paid $14,700 on the long-term note payable.
c. Issued new shares of stock for $38,050 cash.
d. Dividends of $650 were declared and paid.
e. Other expenses all relate to wages.
f. Accounts payable includes only inventory purchases made on credit.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9f50a71f-8223-44c7-add6-dd8242c61e46%2Fc3ee5faa-a04c-456b-8c8c-e9788cbb18bc%2Fg3lk0uj_processed.png&w=3840&q=75)
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