The comparative balance sheet of Merrick Equipment Co. for December 31, 20Y9 and 20Y8, is as follows: Dec. 31, 20Y9 Dec. 31, 20Y8 Assets Cash $259,510 $239,180 Accounts receivable (net) 94,010 85,900 Inventories 265,380 254,340 Investments 0 98,530 Land 136,120 0 Equipment 292,800 224,860 Accumulated depreciation—equipment (68,550) (60,640) Total assets $979,270 $842,170 Liabilities and Stockholders' Equity Accounts payable $177,250 $165,910 Accrued expenses payable 17,630 21,900 Dividends payable 9,790 7,580 Common stock, $10 par 52,880 41,270 Paid-in capital: Excess of issue price over par-common stock 198,790 114,540 Retained earnings 522,930 490,970 Total liabilities and stockholders’ equity $979,270 $842,170 Additional data obtained from an examination of the accounts in the ledger for 20Y9 are as follows: Equipment and land were acquired for cash. There were no disposals of equipment during the year. The investments were sold for $88,680 cash. The common stock was issued for cash. There was a $71,540 credit to Retained Earnings for net income. There was a $39,580 debit to Retained Earnings for cash dividends declared. Required: 1.Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments
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 Merrick Equipment Co. for December 31, 20Y9 and 20Y8, is as follows:
| Dec. 31, 20Y9 | Dec. 31, 20Y8 | ||||
| Assets | |||||
| Cash | $259,510 | $239,180 | |||
| 94,010 | 85,900 | ||||
| Inventories | 265,380 | 254,340 | |||
| Investments | 0 | 98,530 | |||
| Land | 136,120 | 0 | |||
| Equipment | 292,800 | 224,860 | |||
| (68,550) | (60,640) | ||||
| Total assets | $979,270 | $842,170 | |||
| Liabilities and |
|||||
| Accounts payable | $177,250 | $165,910 | |||
| Accrued expenses payable | 17,630 | 21,900 | |||
| Dividends payable | 9,790 | 7,580 | |||
| Common stock, $10 par | 52,880 | 41,270 | |||
| Paid-in capital: Excess of issue price over par-common stock | 198,790 | 114,540 | |||
| 522,930 | 490,970 | ||||
| Total liabilities and stockholders’ equity | $979,270 | $842,170 |
Additional data obtained from an examination of the accounts in the ledger for 20Y9 are as follows:
- Equipment and land were acquired for cash.
- There were no disposals of equipment during the year.
- The investments were sold for $88,680 cash.
- The common stock was issued for cash.
- There was a $71,540 credit to Retained Earnings for net income.
- There was a $39,580 debit to Retained Earnings for cash dividends declared.
Required:
1.Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.
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