Computing Financial Statement Measures The following pretax amounts are taken from the adjusted trial balance of Mastery Inc. on December 31, 2020, its annual year-end. Assume that the income tax rate for all items is 25%. The average number of common shares outstanding during the year was 20,000. Balance, retained earnings, December 31, 2019 $ 45,000 Sales revenue 300,000 Cost of goods sold 105,000 Selling expenses 36,000 Administrative expenses 34,000 Gain on sale of investments 10,000 Unrealized holding gain on debt investments, net of tax 4,250 Prior period adjustment, understatement of depreciation from prior period (2019) 20,000 Dividends declared and paid 16,000 Required Compute the following amounts for the year-end financial statements of 2020. Do not use negative signs with any of your answers. Round the per share amount to two decimal places. Item Amount a. Gross profit (2020). b. Operating income (2020). c. Net income (2020). d. Earnings per share (2020). e. Comprehensive income (2020). f. Retained earnings balance (December 31, 2020)
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.
Computing Financial Statement Measures
The following pretax amounts are taken from the adjusted
| Balance, |
$ 45,000 |
| Sales revenue | 300,000 |
| Cost of goods sold | 105,000 |
| Selling expenses | 36,000 |
| Administrative expenses | 34,000 |
| Gain on sale of investments | 10,000 |
| Unrealized holding gain on debt investments, net of tax | 4,250 |
| Prior period adjustment, understatement of |
20,000 |
| Dividends declared and paid | 16,000 |
Required
Compute the following amounts for the year-end financial statements of 2020.
- Do not use negative signs with any of your answers.
- Round the per share amount to two decimal places.
| Item | Amount |
|---|---|
|
a. Gross profit (2020). |
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b. Operating income (2020). |
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c. Net income (2020).
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| d. Earnings per share (2020).
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|
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e. Comprehensive income (2020). |
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f. Retained earnings balance (December 31, 2020) |
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