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. The directors have asked each student from your accounting course to assist with the needed clarification and have put forward the following financial information grouped according to initial R. Having identified the information in line with your first name you are next required to address the requirements outlined below. Financial info to be used by first names with initials (C, O, R, Y) Auga Company Ltd Comparative Balance Sheet December 31, 2021 and 2020 2021 2020 Increase/(Decrease) Assets Cash 110,000 70,000 ? Accounts Receivable 300,000 325,000 ? Supplies 350,000 280,000 ? Prepaid expenses 35,000 28,000 ? Intangible assets 215,000 215,000 ? Equipment, net 1,200,000 980,000 ? Total Assets 2,210,000 1,898,000 Liabilities Accounts payable 250,000 140,000 ? Accrued liabilities 210,000 215,000 ? Income tax payable 78,000 98,500 ? Long-term notes payable 602,000 725,000 ? Stockholders' Equity Common Stock 410,000 330,000 ? Retained earnings 730,000 450,000 ? Treasury stock (70,000) (60,500) ? Total liabilities and stockholders' equity 2,210,000 1,898,000 Auga Company Ltd Income Statement Year Ended December 31,2021 Revenues and gains: Sales revenue 2,100,000 Gain on sale of Equipment 85,000 Total revenues and gains 2,185,000 Expenses Cost of goods sold 900,000 Depreciation expense 150,000 Other operating expense 350,000 Total expenses 1,400,000 Income before income taxes 785,000 Income tax expense 210,000 Net Income 575,000 Notes Acquisition of Equipment during 2021 540,000 Sale proceeds from sale of Equipment 255,000 Receipt for issuance of notes payable 27,000 Payment for note payable 150,000 Dividend paid 295,000 Book value of equipment sold 170,000 Requirements 1. Answer the following questions for the directors: d. True or false, the financing activities section of the statement of cash flows reflects the cash flows that affect current assets and liabilities? e. True or false, buying property, plant and equipment would be considered a cash outflow from financing? f. True or false, the financing section of the statement of cash flows reflects transactions in the equity accounts and the long-term liability accounts? g. True or false, suppose Auga Company Ltd just started business and was looking for additional capital in order to purchase a property to build their headquarters. If they found an investor who was willing to sell them land worth $500,000 in exchange for stock in the company, would this transaction be shown in the investing activities section of the statement of cash flows?
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.
The directors have asked each student from your accounting course to assist with the needed clarification and have put forward the following financial information grouped according to initial R.
Having identified the information in line with your first name you are next required to address the requirements outlined below.
Financial info to be used by first names with initials (C, O, R, Y)
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Auga Company Ltd |
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Comparative Balance Sheet |
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December 31, 2021 and 2020 |
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2021 |
2020 |
Increase/(Decrease) |
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Assets |
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Cash |
110,000 |
70,000 |
? |
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300,000 |
325,000 |
? |
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Supplies |
350,000 |
280,000 |
? |
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Prepaid expenses |
35,000 |
28,000 |
? |
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Intangible assets |
215,000 |
215,000 |
? |
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Equipment, net |
1,200,000 |
980,000 |
? |
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Total Assets |
2,210,000 |
1,898,000 |
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Liabilities |
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Accounts payable |
250,000 |
140,000 |
? |
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Accrued liabilities |
210,000 |
215,000 |
? |
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Income tax payable |
78,000 |
98,500 |
? |
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Long-term notes payable |
602,000 |
725,000 |
? |
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Common Stock |
410,000 |
330,000 |
? |
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730,000 |
450,000 |
? |
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(70,000) |
(60,500) |
? |
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Total liabilities and stockholders' equity |
2,210,000 |
1,898,000 |
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Auga Company Ltd |
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Income Statement |
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Year Ended December 31,2021 |
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Revenues and gains: |
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Sales revenue |
2,100,000 |
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Gain on sale of Equipment |
85,000 |
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Total revenues and gains |
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2,185,000 |
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Expenses |
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Cost of goods sold |
900,000 |
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150,000 |
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Other operating expense |
350,000 |
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Total expenses |
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1,400,000 |
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Income before income taxes |
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785,000 |
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Income tax expense |
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210,000 |
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Net Income |
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575,000 |
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Notes |
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Acquisition of Equipment during 2021 |
540,000 |
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Sale proceeds from sale of Equipment |
255,000 |
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Receipt for issuance of notes payable |
27,000 |
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Payment for note payable |
150,000 |
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Dividend paid |
295,000 |
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Book value of equipment sold |
170,000 |
Requirements
1. Answer the following questions for the directors:
d. True or false, the financing activities section of the statement of cash flows reflects the cash flows that affect current assets and liabilities?
e. True or false, buying property, plant and equipment would be considered a
f. True or false, the financing section of the statement of cash flows reflects transactions in the equity accounts and the long-term liability accounts?
g. True or false, suppose Auga Company Ltd just started business and was looking for additional capital in order to purchase a property to build their headquarters. If they found an investor who was willing to sell them land worth $500,000 in exchange for stock in the company, would this transaction be shown in the investing activities section of the statement of cash flows?
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