The comparative balance sheet of Navaria Inc. for December 31, 20Y3 and 20Y2, is shown as follows: 1 Dec. 31, 20Y3 Dec. 31, 20Y2 2 Assets 3 Cash $155,000.00 $150,000.00 4 Accounts receivable (net) 450,000.00 400,000.00 5 Inventories 770,000.00 750,000.00 6 Investments 0.00 100,000.00 7 Land 500,000.00 0.00 8 Equipment 1,400,000.00 1,200,000.00 9 Accumulated depreciation-equipment (600,000.00) (500,000.00) 10 Total assets $2,675,000.00 $2,100,000.00 11 Liabilities and Stockholders’ Equity 12 Accounts payable $340,000.00 $300,000.00 13 Accrued expenses payable 45,000.00 50,000.00 14 Dividends payable 30,000.00 25,000.00 15 Common stock, $4 par 700,000.00 600,000.00 16 Paid-in capital: Excess of issue price over par—common stock 200,000.00 175,000.00 17 Retained earnings 1,360,000.00 950,000.00 18 Total liabilities and stockholders’ equity $2,675,000.00 $2,100,000.00 Additional data obtained from an examination of the accounts in the ledger for 20Y3 are as follows: A. The investments were sold for $175,000 cash. B. Equipment and land were acquired for cash. C. There were no disposals of equipment during the year. D. The common stock was issued for cash. E. There was a $500,000 credit to Retained Earnings for net income. F. There was a $90,000 debit to Retained Earnings for cash dividends declared. Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Be sure to complete the heading of the statement. Use the minus sign to indicate cash outflows, decreases in cash and a net cash outflow for each section, if required.
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.
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1
|
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Dec. 31, 20Y3
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Dec. 31, 20Y2
|
|
2
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Assets
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|
|
|
3
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Cash
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$155,000.00
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$150,000.00
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4
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450,000.00
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400,000.00
|
|
5
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Inventories
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770,000.00
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750,000.00
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6
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Investments
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0.00
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100,000.00
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7
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Land
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500,000.00
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0.00
|
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8
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Equipment
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1,400,000.00
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1,200,000.00
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9
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(600,000.00)
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(500,000.00)
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10
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Total assets
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$2,675,000.00
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$2,100,000.00
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11
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Liabilities and
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|
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12
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Accounts payable
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$340,000.00
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$300,000.00
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13
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Accrued expenses payable
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45,000.00
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50,000.00
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14
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Dividends payable
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30,000.00
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25,000.00
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15
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Common stock, $4 par
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700,000.00
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600,000.00
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16
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Paid-in capital: Excess of issue price over par—common stock
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200,000.00
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175,000.00
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17
|
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1,360,000.00
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950,000.00
|
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18
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Total liabilities and stockholders’ equity
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$2,675,000.00
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$2,100,000.00
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| A. | The investments were sold for $175,000 cash. |
| B. | Equipment and land were acquired for cash. |
| C. | There were no disposals of equipment during the year. |
| D. | The common stock was issued for cash. |
| E. | There was a $500,000 credit to Retained Earnings for net income. |
| F. | There was a $90,000 debit to Retained Earnings for cash dividends declared. |
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