Sales.... $900,000 Cost of goods sold 500,000 Gross margin .... Selling and administrative expenses 400,000 328,000 72,000 Net operating income Nonoperating items: Gain on sale of equipment. 8,000 Income before taxes 80,000 Income taxes. 24,000 $ 56,000 Net income Year 2 Year 1 Assets Cash and cash equivalents. $ 4,000 $ 21,000 Accounts receivable 250.000 170,000 .... 310,000 7,000 260,000 Inventory Prepaid expenses 14,000 Total current assets 571,000 465,000 Property, plant, and equipment Less accumulated depreciation 510,000 132,000 400,000 120,000 Net property, plant, and equipment 378.000 280,000 Loan to Hymans Company. 40.000 Total assets $989,000 $745,000 Llabilities and Stockholders' Equity $310,000 20,000 45,000 $250,000 30,000 42,000 Accounts payable... Accrued liabilitles Income taxes payable Total current labilities Bonds payable 375,000 322,000 190,000 70,000 392,000 Total liabilities 565,000 Common stock .... Retained cornings 300,000 270,000 83,000 353.000 $745,000 124,000 Total stockhoiders' equity.... 424.000 $989.000 lotal Nabilities and stockholders' equity
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.
Prepare a Statement of Cash Flows;
Joyner Company’s income statement for Year 2 follows:
Its balance sheet amounts at the end of Years 1 and 2 are as follows:
Equipment that had cost $40,000 and on which there was
Required:
1. Using the indirect method, compute the net cash provided by operating activities for Year 2.
2. Prepare a statement of cash flows for Year 2.
3. Compute the free cash flow for Year 2.
4. Briefly explain why cash declined so sharply during the year.
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