Scenario: The 2021 comparative balance sheet and income statement of Auga Company Ltd, have just been distributed at a meeting of the company’s board of directors. The members of the board of directors were desirous of knowing the reason or reasons why the cash balance different from the net income. The company uses the indirect method to prepare the statement of cash flows and it is expected that this should be able to provide the needed clarity required by the directors. Auga Company Ltd Comparative Balance Sheet December 31, 2021 and 2020 2021 2020 Increase/(Decrease) Assets Cash 215,800 208,300 ? Accounts Receivable 259,300 295,800 ? Inventories 348,800 395,500 ? Prepaid expenses 43,950 30,500 ? Intangible assets 185,450 185,450 ? Plant assets, net 1,000,000 895,500 ? Total Assets 2,053,300 2,011,050 Liabilities Accounts payable 245,500 263,330 ? Accrued liabilities 410,440 486,530 ? Income tax payable 135,940 125,250 ? Long-term notes payable 910,675 864,575 ? Stockholders' Equity Common Stock 310,000 258,500 ? Retained earnings 495,325 324,168 ? Treasury stock (454,580) (311,303) ? Total liabilities and stockholders' equity 2,053,300 2,011,050 Auga Company Ltd Income Statement Year Ended December 31,2021 Revenues and gains: Sales revenue 2,432,502 Gain on sale of plant assets 125,250 Total revenues and gains 2,557,752 Expenses Cost of goods sold 1,390,000 Depreciation expense 174,350 Other operating expense 525,000 Total expenses 2,089,350 Income before income taxes 468,402 Income tax expense 225,000 Net Income 243,402 Notes Acquisition of plant asset during 2021 498,850 Sale proceeds from sale of plant asset 345,250 Receipt for issuance of notes payable 556,100 Payment for note payable 510,000 Dividend paid 72,245 Book value of equipment sold 220,000 Requirements Reconstruct the company’s comparative balance sheet for 2020/2021 using the information and compute and show the missing figures to include the appropriate sign as a positive or negative figure. Prepare a complete statement of cash flows for 2021 using the indirect method using the information
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.
Scenario:
The 2021 comparative
|
Auga Company Ltd |
|||
|
Comparative Balance Sheet |
|||
|
December 31, 2021 and 2020 |
|||
|
|
2021 |
2020 |
Increase/(Decrease) |
|
Assets |
|
|
|
|
Cash |
215,800 |
208,300 |
? |
|
|
259,300 |
295,800 |
? |
|
Inventories |
348,800 |
395,500 |
? |
|
Prepaid expenses |
43,950 |
30,500 |
? |
|
Intangible assets |
185,450 |
185,450 |
? |
|
Plant assets, net |
1,000,000 |
895,500 |
? |
|
Total Assets |
2,053,300 |
2,011,050 |
|
|
Liabilities |
|
|
|
|
Accounts payable |
245,500 |
263,330 |
? |
|
Accrued liabilities |
410,440 |
486,530 |
? |
|
Income tax payable |
135,940 |
125,250 |
? |
|
Long-term notes payable |
910,675 |
864,575 |
? |
|
|
|
|
|
|
Common Stock |
310,000 |
258,500 |
? |
|
|
495,325 |
324,168 |
? |
|
|
(454,580) |
(311,303) |
? |
|
Total liabilities and stockholders' equity |
2,053,300 |
2,011,050 |
|
|
Auga Company Ltd |
||
|
Income Statement |
||
|
Year Ended December 31,2021 |
||
|
Revenues and gains: |
|
|
|
Sales revenue |
2,432,502 |
|
|
Gain on sale of plant assets |
125,250 |
|
|
Total revenues and gains |
|
2,557,752 |
|
Expenses |
|
|
|
Cost of goods sold |
1,390,000 |
|
|
|
174,350 |
|
|
Other operating expense |
525,000 |
|
|
Total expenses |
|
2,089,350 |
|
Income before income taxes |
|
468,402 |
|
Income tax expense |
|
225,000 |
|
Net Income |
|
243,402 |
|
Notes |
||
|
Acquisition of plant asset during 2021 |
498,850 |
|
|
Sale proceeds from sale of plant asset |
345,250 |
|
|
Receipt for issuance of notes payable |
556,100 |
|
|
Payment for note payable |
510,000 |
|
|
Dividend paid |
72,245 |
|
|
Book value of equipment sold |
220,000 |
Requirements
- Reconstruct the company’s comparative balance sheet for 2020/2021 using the information and compute and show the missing figures to include the appropriate sign as a positive or negative figure.
- Prepare a complete statement of cash flows for 2021 using the indirect method using the information
Step by step
Solved in 3 steps with 6 images
