Teal Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The comparative balance sheet and income statement for Teal as of May 31, 2020, are as follows. The company is preparing its statement of cash flows. TEAL COMPANY COMPARATIVE BALANCE SHEET AS OF MAY 31 2020 2019 Current assets Cash $28,200 $19,800 Accounts receivable 74,700 58,500 Inventory 218,100 250,800 Prepaid expenses 9,000 6,900 Total current assets 330,000 336,000 Plant assets Plant assets 598,100 498,300 Less: Accumulated depreciation—plant assets 149,000 124,700 Net plant assets 449,100 373,600 Total assets $779,100 $709,600 Current liabilities Accounts payable $123,900 $116,100 Salaries and wages payable 46,800 72,200 Interest payable 27,100 25,300 Total current liabilities 197,800 213,600 Long-term debt Bonds payable 70,000 100,000 Total liabilities 267,800 313,600 Stockholders’ equity Common stock, $10 par 370,000 280,000 Retained earnings 141,300 116,000 Total stockholders’ equity 511,300 396,000 Total liabilities and stockholders’ equity $779,100 $709,600 TEAL COMPANY INCOME STATEMENT FOR THE YEAR ENDED MAY 31, 2020 Sales revenue $1,247,300 Cost of goods sold 729,200 Gross profit 518,100 Expenses Salaries and wages expense 251,600 Interest expense 74,500 Depreciation expense 24,300 Other expenses 8,200 Total expenses 358,600 Operating income 159,500 Income tax expense 43,300 Net income $116,200 The following is additional information concerning Teal’s transactions during the year ended May 31, 2020. 1. All sales during the year were made on account. 2. All merchandise was purchased on account, comprising the total accounts payable account. 3. Plant assets costing $99,800 were purchased by paying $28,800 in cash and issuing 7,100 shares of stock. 4. The “other expenses” are related to prepaid items. 5. All income taxes incurred during the year were paid during the year. 6. In order to supplement its cash, Teal issued 1,900 shares of common stock at par value. 7. Cash dividends of $90,900 were declared and paid at the end of the fiscal year. (b) Prepare a statement of cash flows for Teal Company for the year ended May 31, 2020, using the direct method. (A reconciliation of net income to net cash provided is not required.) (Show amounts in the investing and financing sections that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)
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.
11.
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TEAL COMPANY
COMPARATIVE BALANCE SHEET AS OF MAY 31 |
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2020
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2019
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| Current assets | ||||
| Cash |
$28,200
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$19,800
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| Accounts receivable |
74,700
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58,500
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| Inventory |
218,100
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250,800
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| Prepaid expenses |
9,000
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6,900
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| Total current assets |
330,000
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336,000
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| Plant assets | ||||
| Plant assets |
598,100
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498,300
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| Less: |
149,000
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124,700
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| Net plant assets |
449,100
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373,600
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| Total assets |
$779,100
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$709,600
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| Current liabilities | ||||
| Accounts payable |
$123,900
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$116,100
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| Salaries and wages payable |
46,800
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72,200
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| Interest payable |
27,100
|
25,300
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| Total current liabilities |
197,800
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213,600
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| Long-term debt | ||||
| Bonds payable |
70,000
|
100,000
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| Total liabilities |
267,800
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313,600
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| Common stock, $10 par |
370,000
|
280,000
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| |
141,300
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116,000
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| Total stockholders’ equity |
511,300
|
396,000
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| Total liabilities and stockholders’ equity |
$779,100
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$709,600
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TEAL COMPANY
INCOME STATEMENT FOR THE YEAR ENDED MAY 31, 2020 |
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| Sales revenue |
$1,247,300
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| Cost of goods sold |
729,200
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| Gross profit |
518,100
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| Expenses | ||
| Salaries and wages expense |
251,600
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| Interest expense |
74,500
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| Depreciation expense |
24,300
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| Other expenses |
8,200
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| Total expenses |
358,600
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| Operating income |
159,500
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| Income tax expense |
43,300
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| Net income |
$116,200
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The following is additional information concerning Teal’s transactions during the year ended May 31, 2020.
| 1. | All sales during the year were made on account. | |
| 2. | All merchandise was purchased on account, comprising the total accounts payable account. | |
| 3. | Plant assets costing $99,800 were purchased by paying $28,800 in cash and issuing 7,100 shares of stock. | |
| 4. | The “other expenses” are related to prepaid items. | |
| 5. | All income taxes incurred during the year were paid during the year. | |
| 6. | In order to supplement its cash, Teal issued 1,900 shares of common stock at par value. | |
| 7. | Cash dividends of $90,900 were declared and paid at the end of the fiscal year. |
(b)
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TEAL COMPANY
Statement of Cash Flows (Partial) |
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$
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Cash payments:
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$
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$
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$
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