Problem 21-4 (Algo) Statement of cash flows; direct method [LO21-3, 21-8] The comparative balance sheets for 2021 and 2020 and the statement of income for 2021 are given below for Dux Company. Additional information from Dux's accounting records is provided also. DUX COMPANY Comparative Balance Sheets December 31, 2021 and 2020 ($ in thousands) 2021 2020 Assets Cash $ 49 $ 24 Accounts receivable 46 53 Less: Allowance for uncollectible accounts (3 ) (2 ) Dividends receivable 3 2 Inventory 65 60 Long-term investment 21 18 Land 85 60 Buildings and equipment 273 290 Less: Accumulated depreciation (70 ) (90 ) $ 469 $ 415 Liabilities Accounts payable $ 35 $ 43 Salaries payable 3 7 Interest payable 7 2 Income tax payable 8 9 Notes payable 25 0 Bonds payable 115 90 Less: Discount on bonds (4 ) (5 ) Shareholders' Equity Common stock 210 200 Paid-in capital—excess of par 24 20 Retained earnings 54 49 Less: Treasury stock (8 ) 0 $ 469 $ 415 DUX COMPANY Income Statement For the Year Ended December 31, 2021 ($ in thousands) Revenues Sales revenue $ 240 Dividend revenue 3 $ 243 Expenses Cost of goods sold 140 Salaries expense 33 Depreciation expense 7 Bad debt expense 1 Interest expense 9 Loss on sale of building 7 Income tax expense 16 213 Net income $ 30 Additional information from the accounting records: A building that originally cost $36,000, and which was three-fourths depreciated, was sold for $2,000. The common stock of Byrd Corporation was purchased for $3,000 as a long-term investment. Property was acquired by issuing a 13%, seven-year, $25,000 note payable to the seller. New equipment was purchased for $19,000 cash. On January 1, 2021, bonds were sold at their $25,000 face value. On January 19, Dux issued a 5% stock dividend (1,000 shares). The market price of the $10 par value common stock was $14 per share at that time. Cash dividends of $11,000 were paid to shareholders. On November 12, 500 shares of common stock were repurchased as treasury stock at a cost of $8,000. Required: Prepare the statement of cash flows of Dux Company for the year ended December 31, 2021. Present cash flows from operating activities by the direct method. (Do not round your intermediate calculations. Enter your answers in thousands (i.e., 10,000 should be entered as 10). Amounts to be deducted should be indicated with a minus sign.)
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.
Problem 21-4 (Algo) Statement of cash flows; direct method [LO21-3, 21-8]
The comparative balance sheets for 2021 and 2020 and the statement of income for 2021 are given below for Dux Company. Additional information from Dux's accounting records is provided also.
| DUX COMPANY Comparative Balance Sheets December 31, 2021 and 2020 ($ in thousands) |
||||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Cash | $ | 49 | $ | 24 | ||||
| 46 | 53 | |||||||
| Less: Allowance for uncollectible accounts | (3 | ) | (2 | ) | ||||
| Dividends receivable | 3 | 2 | ||||||
| Inventory | 65 | 60 | ||||||
| Long-term investment | 21 | 18 | ||||||
| Land | 85 | 60 | ||||||
| Buildings and equipment | 273 | 290 | ||||||
| Less: Accumulated |
(70 | ) | (90 | ) | ||||
| $ | 469 | $ | 415 | |||||
| Liabilities | ||||||||
| Accounts payable | $ | 35 | $ | 43 | ||||
| Salaries payable | 3 | 7 | ||||||
| Interest payable | 7 | 2 | ||||||
| Income tax payable | 8 | 9 | ||||||
| Notes payable | 25 | 0 | ||||||
| Bonds payable | 115 | 90 | ||||||
| Less: Discount on bonds | (4 | ) | (5 | ) | ||||
| Shareholders' Equity | ||||||||
| Common stock | 210 | 200 | ||||||
| Paid-in capital—excess of par | 24 | 20 | ||||||
| 54 | 49 | |||||||
| Less: |
(8 | ) | 0 | |||||
| $ | 469 | $ | 415 | |||||
| DUX COMPANY Income Statement For the Year Ended December 31, 2021 ($ in thousands) |
||||||
| Revenues | ||||||
| Sales revenue | $ | 240 | ||||
| Dividend revenue | 3 | $ | 243 | |||
| Expenses | ||||||
| Cost of goods sold | 140 | |||||
| Salaries expense | 33 | |||||
| Depreciation expense | 7 | |||||
| 1 | ||||||
| Interest expense | 9 | |||||
| Loss on sale of building | 7 | |||||
| Income tax expense | 16 | 213 | ||||
| Net income | $ | 30 | ||||
Additional information from the accounting records:
- A building that originally cost $36,000, and which was three-fourths depreciated, was sold for $2,000.
- The common stock of Byrd Corporation was purchased for $3,000 as a long-term investment.
- Property was acquired by issuing a 13%, seven-year, $25,000 note payable to the seller.
- New equipment was purchased for $19,000 cash.
- On January 1, 2021, bonds were sold at their $25,000 face value.
- On January 19, Dux issued a 5% stock dividend (1,000 shares). The market price of the $10 par value common stock was $14 per share at that time.
- Cash dividends of $11,000 were paid to shareholders.
- On November 12, 500 shares of common stock were repurchased as treasury stock at a cost of $8,000.
Required:
Prepare the statement of cash flows of Dux Company for the year ended December 31, 2021. Present cash flows from operating activities by the direct method. (Do not round your intermediate calculations. Enter your answers in thousands (i.e., 10,000 should be entered as 10). Amounts to be deducted should be indicated with a minus sign.)
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