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. True or false, the financing activities section of the statement of cash flows reflects the cash flows that affect current assets and liabilities? True or false, buying property, plant and equipment would be considered a cash outflow from financing? True or false, the financing section of the statement of cash flows reflects transactions in the equity accounts and the long-term liability accounts? True or false, suppose Agua 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? 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
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.
- True or false, the financing activities section of the statement of cash flows reflects the cash flows that affect current assets and liabilities?
- True or false, buying property, plant and equipment would be considered a
cash outflow from financing? - True or false, the financing section of the statement of cash flows reflects transactions in the equity accounts and the long-term liability accounts?
- True or false, suppose Agua 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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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 |
215,800 |
208,300 |
? |
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259,300 |
295,800 |
? |
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Inventories |
348,800 |
395,500 |
? |
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Prepaid expenses |
43,950 |
30,500 |
? |
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Intangible assets |
185,450 |
185,450 |
? |
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Plant assets, net |
1,000,000 |
895,500 |
? |
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Total Assets |
2,053,300 |
2,011,050 |
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Liabilities |
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Accounts payable |
245,500 |
263,330 |
? |
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Accrued liabilities |
410,440 |
486,530 |
? |
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Income tax payable |
135,940 |
125,250 |
? |
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Long-term notes payable |
910,675 |
864,575 |
? |
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Common Stock |
310,000 |
258,500 |
? |
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495,325 |
324,168 |
? |
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(454,580) |
(311,303) |
? |
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Total liabilities and stockholders' equity |
2,053,300 |
2,011,050 |
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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 |
2,432,502 |
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Gain on sale of plant assets |
125,250 |
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Total revenues and gains |
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2,557,752 |
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Expenses |
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Cost of goods sold |
1,390,000 |
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174,350 |
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Other operating expense |
525,000 |
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Total expenses |
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2,089,350 |
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Income before income taxes |
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468,402 |
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Income tax expense |
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225,000 |
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Net Income |
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243,402 |
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Notes |
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Acquisition of plant asset during 2021 |
498,850 |
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Sale proceeds from sale of plant asset |
345,250 |
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Receipt for issuance of notes payable |
556,100 |
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Payment for note payable |
510,000 |
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Dividend paid |
72,245 |
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Book value of equipment sold |
220,000 |
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