Burgess Company Comparative Balance Sheet (dollars in milions) Ending Balance Beginning Balance Assets Current assets: Cash and cash equivalents 49 24 79 Accounts receivable 645 580 Inventory 660 615 Total current assets 1,354 1.274 Property, plant, and equipment Less accumulated depreciation 1,515 765 1,466 641 Net property, plant, and equipment 750 825 Total assets $2,104 $2,099 Liabilities and Stockholders' Equity Current liabilties: $ 250 Accounts payable. Accrued liabilities Income taxes payable $ 155 190 165 76 70 Total current liabilities 516 390 Bonds payable 450 620 Total liabilitles 966 1,010 Stockholders' equity: Common stock.. Retained eamings 161 161 977 928 Total stockholders' equity 1,138 1,089 Total liabilities and stockholders' equity $2,104 $2,099 ... %24 Burgess Company Income Statement (dollars in millions) Sales.... $3,600 Cost of goods sold. Gross margin...... Selling and administrative expenses Net operating income Nonoperating items: Gain on sale of equipment Income before taxes 2,550 1,050 875 175 3 178 Income taxes 63 Net income $ 115
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
A comparative balance sheet and an income statement for Burgess Company are given below:
Burgess also provided the following information:
1. The company sold equipment that had an original cost of $13 million and
2. The company did not issue any new bonds during the year.
3. The company paid a cash dividend during the year.
4. The company did not complete any common stock transactions during the year.
Required:
1. Using the indirect method, prepare a statement of cash flows for the year.
2. Assume that Burgess had sales of $3,800, net income of $135, and net cash provided by operating activities of $150 in the prior year (all numbers are staled in millions). Prepare a memo that summarizes your interpretations of Burgess’s financial performance.
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