Conrad Air Inc. reported net income of $1,365,000 for the year ended December 31, 2020. Show how Conrad’s balance sheet would change from 2019 to 2020 depending on how Conrad “spent” those earnings as described in the scenarios that appear below Conrad Air Inc. Balance Sheet as of December 31, 2019Assets Cash $ 120,000Marketable securities 35,000 Accounts receivable 45,000 Inventories $ 130,000 Current assets 330,000Equipment 2,970,000 Buildings 1,600,000Fixed assets 4,570,000 Total assets $4,900,000 Liabilities and Stockholders’ Equity Accounts payable $ 70,000Short-term notes 55,000 Current liabilities 125,000 Long-term debt 2,700,000 Total liabilities 2,825,000Common stock 500,000 Retained earnings 1,575,000Stockholders’ equity 2,075,000 Total liabilities and equity $4,900,000 a. Conrad paid no dividends during the year and invested the funds in marketable securities.b. Conrad paid dividends totaling $500,000 and used the balance of the net income to retire (pay off) long-term debt.c. Conrad paid dividends totaling $500,000 and invested the balance of the net income in building a new hangar.d. Conrad paid out all $1,365,000 as dividends to its stockholder
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.
Conrad Air Inc. reported net income of $1,365,000 for the year ended December 31, 2020. Show how Conrad’s balance sheet would change from 2019 to 2020 depending on how Conrad “spent” those earnings as described in the scenarios that appear below
Conrad Air Inc. Balance Sheet as of December 31, 2019
Assets Cash $ 120,000
Marketable securities 35,000
Accounts receivable 45,000
Inventories $ 130,000
Current assets 330,000
Equipment 2,970,000
Buildings 1,600,000
Fixed assets 4,570,000
Total assets $4,900,000
Liabilities and
Accounts payable $ 70,000
Short-term notes 55,000
Current liabilities 125,000
Long-term debt 2,700,000
Total liabilities 2,825,000
Common stock 500,000
Stockholders’ equity 2,075,000
Total liabilities and equity $4,900,000
a. Conrad paid no dividends during the year and invested the funds in marketable securities.
b. Conrad paid dividends totaling $500,000 and used the balance of the net income to retire (pay off) long-term debt.
c. Conrad paid dividends totaling $500,000 and invested the balance of the net income in building a new hangar.
d. Conrad paid out all $1,365,000 as dividends to its stockholder
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