Lugi Ka Na Company has been forced into bankruptcy as of April 30 because of its inability to pay its debts. The statement of financial position on that date shows: ASSETS LIABILITIES & EQUITY Cash P5,400 Accounts Payable P105,000 Accounts Receivable 78,700 Notes Payable – PNB 30,000 Note Receivable 37,000 Notes Payable – suppliers 102,500 Inventory 175,700 Accrued wages 3,700 Prepaid Expenses 1,900 Accrued taxes 9,300 Land and Building 122,500 Mortgage Bonds Payable 180,000 Equipment, net 97,600 Common stock – P100 par 150,000 Retained Earnings (61,700) Total Assets P518,800 Total Liabilities & Equity P518,800 Additional information: a. Accounts receivable of P32,220 and notes receivable of P25,000 are expected to be collectible. The good notes are pledged to Philippine National Bank. b. Inventories are expected to bring in P90,200 when sold under bankruptcy conditions. c. Land and buildings have an appraised value of P190,000. They serve as security on the bonds. d. The current value of the equipment, net of disposal cost is P18,000. e. Estimated legal and accounting fees for the liquidation are P2,000. f. Unrecorded interest on notes payable to supplier amounts to P1,000 4. Unsecured liabilities without priority _____________ 5. Estimated recovery percentage _____________ 6. Net gain (loss) on realization
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.
Lugi Ka Na Company has been forced into bankruptcy as of April 30 because of its inability to pay its debts.
The
ASSETS LIABILITIES & EQUITY
Cash P5,400 Accounts Payable P105,000
Accounts Receivable 78,700 Notes Payable – PNB 30,000
Note Receivable 37,000 Notes Payable – suppliers 102,500
Inventory 175,700 Accrued wages 3,700
Prepaid Expenses 1,900 Accrued taxes 9,300
Land and Building 122,500 Mortgage Bonds Payable 180,000
Equipment, net 97,600 Common stock – P100 par 150,000
Total Assets P518,800 Total Liabilities & Equity P518,800
Additional information:
a. Accounts receivable of P32,220 and notes receivable of P25,000 are expected to be collectible. The good
notes are pledged to Philippine National Bank.
b. Inventories are expected to bring in P90,200 when sold under bankruptcy conditions.
c. Land and buildings have an appraised value of P190,000. They serve as security on the bonds.
d. The current value of the equipment, net of disposal cost is P18,000.
e. Estimated legal and accounting fees for the liquidation are P2,000.
f. Unrecorded interest on notes payable to supplier amounts to P1,000
4. Unsecured liabilities without priority _____________
5. Estimated recovery percentage _____________
6. Net gain (loss) on realization
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