Following are selected balance sheet accounts of Splish Bros. Corp. at December 31, 2020 and 2019, and the increases or decreases in each account from 2019 to 2020. Also presented is selected income statement information for the year ended December 31, 2020, and additional information. Selected balance sheet accounts Assets 2020 2019 Increase (Decrease) Accounts receivable $34,200 $24,200 $10,000 Property, plant, and equipment 274,900 249,200 25,700 Accumulated depreciation—plant assets (179,600 ) (167,900 ) (11,700 ) Liabilities and stockholders’ equity 2020 2019 Increase Bonds payable $ 49,300 $45,800 $3,500 Dividends payable 7,900 5,100 2,800 Common stock, $1 par 22,200 19,000 3,200 Additional paid-in capital 9,000 2,900 6,100 Retained earnings 104,200 91,900 12,300 Selected income statement information for the year ended December 31, 2020: Sales revenue $154,300 Depreciation 37,600 Gain on sale of equipment 14,500 Net income 31,300 Additional information: 1. During 2020, equipment costing $44,700 was sold for cash. 2. Accounts receivable relate to sales of merchandise. 3. During 2020, $20,100 of bonds payable were issued in exchange for property, plant, and equipment. There was no amortization of bond discount or premium. Determine the category (operating, investing, or financing) and the amount that should be reported in the statement of cash flows for the following items.
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.
Following are selected balance sheet accounts of Splish Bros. Corp. at December 31, 2020 and 2019, and the increases or decreases in each account from 2019 to 2020. Also presented is selected income statement information for the year ended December 31, 2020, and additional information.
| Selected balance sheet accounts | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Assets |
2020
|
2019
|
Increase
(Decrease) |
||||||
|
|
$34,200 | $24,200 | $10,000 | ||||||
|
Property, plant, and equipment
|
274,900 | 249,200 | 25,700 | ||||||
|
Accumulated
|
(179,600 | ) | (167,900 | ) | (11,700 | ) | |||
| Liabilities and |
2020
|
2019
|
Increase
|
||||||
|
Bonds payable
|
$ 49,300 | $45,800 | $3,500 | ||||||
|
Dividends payable
|
7,900 | 5,100 | 2,800 | ||||||
|
Common stock, $1 par
|
22,200 | 19,000 | 3,200 | ||||||
|
Additional paid-in capital
|
9,000 | 2,900 | 6,100 | ||||||
|
|
104,200 | 91,900 | 12,300 | ||||||
| Selected income statement information for the year ended December 31, 2020: | |||||||||
|
Sales revenue
|
$154,300 | ||||||||
|
Depreciation
|
37,600 | ||||||||
|
Gain on sale of equipment
|
14,500 | ||||||||
|
Net income
|
31,300 |
Additional information:
| 1. | During 2020, equipment costing $44,700 was sold for cash. | |
| 2. | Accounts receivable relate to sales of merchandise. | |
| 3. | During 2020, $20,100 of bonds payable were issued in exchange for property, plant, and equipment. There was no amortization of bond discount or premium. |
Determine the category (operating, investing, or financing) and the amount that should be reported in the statement of cash flows for the following items.
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