The comparative balance sheet of ConnieJo Company, for Years 1 and 2 ended December 31 appears in condensed form as follows: Line Item Description Year 2 Year 1 Assets Cash $45,000 $53,500 Accounts receivable (net) 51,300 58,000 Inventories 147,200 135,000 Investments 0 60,000 Equipment 493,000 375,000 Accumulated depreciation—equipment (113,700) (128,000) Total assets $622,800 $553,500 Liabilities and Stockholders' Equity Accounts payable $61,500 $42,600 Bonds payable, due Year 4 0 100,000 Common stock, $10 par 250,000 200,000 Paid-in capital in excess of par—common stock 75,000 50,000 Retained earnings 236,300 160,900 Total liabilities and stockholders' equity $622,800 $553,500 The income statement for the current year is as follows: Line Item Description Amount Amount Sales $629,700 Cost of goods sold (341,800) Gross profit $287,900 Operating expenses: Depreciation expense $24,700 Other operating expenses 75,300 Total operating expenses (100,000) Operating income $187,900 Other revenue and expense: Gain on sale of investment $5,000 Interest expense (12,000) Total other revenue and expense (7,000) Income before income tax $180,900 Income tax expense (64,100) Net income $116,800 Additional data for the current year are as follows: Fully depreciated equipment costing $39,000 was scrapped, no salvage, and equipment was purchased for $157,000. Bonds payable for $100,000 were retired by payment at their face amount. 5,000 shares of common stock were issued at $15 for cash. Cash dividends declared were paid, $41,400. All sales are on account. Prepare a statement of cash flows, using the indirect method of reporting cash flows from (used for) operating activities.
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.
The comparative balance sheet of ConnieJo Company, for Years 1 and 2 ended December 31 appears in condensed form as follows:
| Line Item Description | Year 2 | Year 1 |
|---|---|---|
| Assets | ||
| Cash | $45,000 | $53,500 |
| Accounts receivable (net) | 51,300 | 58,000 |
| Inventories | 147,200 | 135,000 |
| Investments | 0 | 60,000 |
| Equipment | 493,000 | 375,000 |
| (113,700) | (128,000) | |
| Total assets | $622,800 | $553,500 |
| Liabilities and |
||
| Accounts payable | $61,500 | $42,600 |
| Bonds payable, due Year 4 | 0 | 100,000 |
| Common stock, $10 par | 250,000 | 200,000 |
| Paid-in capital in excess of par—common stock | 75,000 | 50,000 |
| 236,300 | 160,900 | |
| Total liabilities and stockholders' equity | $622,800 | $553,500 |
The income statement for the current year is as follows:
| Line Item Description | Amount | Amount |
|---|---|---|
| Sales | $629,700 | |
| Cost of goods sold | (341,800) | |
| Gross profit | $287,900 | |
| Operating expenses: | ||
| Depreciation expense | $24,700 | |
| Other operating expenses | 75,300 | |
| Total operating expenses | (100,000) | |
| Operating income | $187,900 | |
| Other revenue and expense: | ||
| Gain on sale of investment | $5,000 | |
| Interest expense | (12,000) | |
| Total other revenue and expense | (7,000) | |
| Income before income tax | $180,900 | |
| Income tax expense | (64,100) | |
| Net income | $116,800 |
Additional data for the current year are as follows:
- Fully depreciated equipment costing $39,000 was scrapped, no salvage, and equipment was purchased for $157,000.
- Bonds payable for $100,000 were retired by payment at their face amount.
- 5,000 shares of common stock were issued at $15 for cash.
- Cash dividends declared were paid, $41,400.
- All sales are on account.
Prepare a statement of
ConnieJo CompanyStatement of Cash FlowsFor the Year Ended December 31, Year 2
| Line Item Description | Amount | Amount |
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| Cash flows from (used for) operating activities: | ||
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| Adjustments to reconcile net income to net cash flows from (used for) operating activities: | blank | blank |
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| Changes in current operating assets and liabilities: | ||
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| Net cash flows from operating activities | $Net cash flows from operating activities | |
| Cash flows from (used for) investing activities: | blank | blank |
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| Net cash flows used for investing activities | Net cash flows used for investing activities | |
| Cash flows from (used for) financing activities: | ||
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| Net cash flows used for financing activities | Net cash flows used for financing activities | |
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| Cash balance, January 1, Year 2 | Cash balance, January 1, Year 2 | |
| Cash balance, December 31, Year 2 | $Cash balance, December 31, Year 2 |
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