Pope’s Garage had the following accounts and amounts in its financial statements on December 31, 2019. Assume that all balance sheet items reflect account balances at December 31, 2019, and that all income statement items reflect activities that occurred during the year then ended. Accounts receivable $ 31,300 Depreciation expense 10,200 Land 24,600 Cost of goods sold 87,000 Retained earnings 58,700 Cash 10,200 Equipment 69,000 Supplies 5,400 Accounts payable 23,000 Service revenue 22,500 Interest expense 2,700 Common stock 6,000 Income tax expense 22,830 Accumulated depreciation 40,000 Long-term debt 38,000 Supplies expense 12,500 Merchandise inventory 25,200 Net sales 166,000 Required: Calculate the total current assets at December 31, 2019. Calculate the total liabilities and stockholders’ equity at December 31, 2019. Calculate the earnings from operations (operating income) for the year ended December 31, 2019. Calculate the net income (or loss) for the year ended December 31, 2019. What was the average income tax rate for Pope’s Garage for 2019? If $17,000 of dividends had been declared and paid during the year, what was the January 1, 2019, balance of retained earnings?
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.
Pope’s Garage had the following accounts and amounts in its financial statements on December 31, 2019. Assume that all balance sheet items reflect account balances at December 31, 2019, and that all income statement items reflect activities that occurred during the year then ended.
| Accounts receivable | $ | 31,300 |
| 10,200 | ||
| Land | 24,600 | |
| Cost of goods sold | 87,000 | |
| 58,700 | ||
| Cash | 10,200 | |
| Equipment | 69,000 | |
| Supplies | 5,400 | |
| Accounts payable | 23,000 | |
| Service revenue | 22,500 | |
| Interest expense | 2,700 | |
| Common stock | 6,000 | |
| Income tax expense | 22,830 | |
| 40,000 | ||
| Long-term debt | 38,000 | |
| Supplies expense | 12,500 | |
| Merchandise inventory | 25,200 | |
| Net sales | 166,000 | |
Required:
- Calculate the total current assets at December 31, 2019.
- Calculate the total liabilities and
stockholders’ equity at December 31, 2019. - Calculate the earnings from operations (operating income) for the year ended December 31, 2019.
- Calculate the net income (or loss) for the year ended December 31, 2019.
- What was the average income tax rate for Pope’s Garage for 2019?
- If $17,000 of dividends had been declared and paid during the year, what was the January 1, 2019, balance of retained earnings?
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