Presented below is the 2018 income statement and comparative balance sheet information for Tiger Enterprises.TIGER ENTERPRISESIncome StatementFor the Year Ended December 31, 2018($ in thousands)Sales revenue $7,000Operating expenses:Cost of goods sold $3,360Depreciation 240Insurance 100Administrative and other 1,800Total operating expenses 5,500Income before income taxes 1,500Income tax expense 600Net income $ 900Balance Sheet Information ($ in thousands) Dec. 31, 2018 Dec. 31, 2017Assets:Cash $ 300 $ 200Accounts receivable 750 830Inventory 640 600Prepaid insurance 50 20Plant and equipment 2,100 1,800Less: Accumulated depreciation (840) (600)Total assets $3,000 $2,850Liabilities and Shareholders’ Equity:Accounts payable $ 300 $360Payables for administrative and other expenses 300 400Income taxes payable 200 150Note payable (due 12/31/2019) 800 600Common stock 900 800Retained earnings 500 540Total liabilities and shareholders’ equity $3,000 $2,850Required:Prepare Tiger’s statement of cash flows, using the indirect method to present cash flows from operating activities.(Hint: You will have to calculate dividend payments).Refer to the situation described in E 4–20.
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.
Presented below is the 2018 income statement and comparative balance sheet information for Tiger Enterprises.
TIGER ENTERPRISES
Income Statement
For the Year Ended December 31, 2018
($ in thousands)
Sales revenue $7,000
Operating expenses:
Cost of goods sold $3,360
Insurance 100
Administrative and other 1,800
Total operating expenses 5,500
Income before income taxes 1,500
Income tax expense 600
Net income $ 900
Balance Sheet Information ($ in thousands) Dec. 31, 2018 Dec. 31, 2017
Assets:
Cash $ 300 $ 200
Accounts receivable 750 830
Inventory 640 600
Prepaid insurance 50 20
Plant and equipment 2,100 1,800
Less: Accumulated depreciation (840) (600)
Total assets $3,000 $2,850
Liabilities and Shareholders’ Equity:
Accounts payable $ 300 $360
Payables for administrative and other expenses 300 400
Income taxes payable 200 150
Note payable (due 12/31/2019) 800 600
Common stock 900 800
Retained earnings 500 540
Total liabilities and shareholders’ equity $3,000 $2,850
Required:
Prepare Tiger’s statement of cash flows, using the indirect method to present cash flows from operating activities.
(Hint: You will have to calculate dividend payments).
Refer to the situation described in E 4–20.
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