$100,000 20,000 300,000 500,000 Land Land improvements Buildings Machinery and equipment During 2019, the following transactions occurred: 1. Land was acquired for $70,000 for a future building site. Commissions of $4,000 were paid to a real estate agent. 2. A factory and land were acquired from Kent Development Company by issuing 20,000 shares of $3 par com- mon stock. At that time, the stock was selling for $10 per share on the New York Stock Exchange. The inde- pendently appraised values of the land and the factory were $60,000 and $180,000, respectively. 3. Equipment was acquired at a cost of $120,000. In addition, sales tax, freight costs, and installation costs were $7,000, S10,000, and $16,000, respectively. During installation, the equipment was damaged, and $2,000 was spent for repairs. 4. A new parking lot was installed at a cost of $30,000. 5. Half the land purchased in Item 1 was prepared as a building site. Costs of $26,000 were incurred to clear the land, and the timber recovered was sold for $3,000. A new building was built for $60,000. Architect's fees relating to construction were $18,000, and imputed interest on equity funds used during construction was $15,000. No debt is outstanding. 6. Costs of $20,000 were incurred to improve some leased office space. The lease will terminate in 2021 and is not expected to be renewed. 7. A group of new machines was purchased under a royalty agreement that provides for payment of annual royal- ties based on units produced. The invoice price of the machines was $30,000, freight costs were $2,000, and royalty payments for 2019 were $12,000.
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.
The following account balances were included in Bromley Companγs balance sheet on December 31, 2018:
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