The comparative balance sheet of Yellow Dog Enterprises Inc. at December 31, 20Y8 and 20Y7, is as follows: Dec. 31, 20Y8 Dec. 31, 20Y7 Assets Cash $70,910 $86,990 Accounts receivable (net) 108,960 117,270 Merchandise inventory 155,660 145,360 Prepaid expenses 6,340 4,400 Equipment 317,080 260,420 Accumulated depreciation-equipment (82,440) (63,870) Total assets $576,510 $550,570 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors) $121,070 $115,070 Mortgage note payable 0 165,170 Common stock, $1 par 19,000 12,000 Paid-in capital: Excess of issue price over par-common stock 260,000 155,000 Retained earnings 176,440 103,330 Total liabilities and stockholders’ equity $576,510 $550,570 Additional data obtained from the income statement and from an examination of the accounts in the ledger for 20Y8 are as follows: Net income, $187,160. Depreciation reported on the income statement, $40,180. Equipment was purchased at a cost of $78,270, and fully depreciated equipment costing $21,610 was discarded, with no salvage realized. The mortgage note payable was not due for six years, but the terms permitted earlier payment without penalty. 7,000 shares of common stock were issued at $16 for cash. Cash dividends declared and paid, $114,050. Required: Prepare a statement of cash flows, using the indirect method. 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 Yellow Dog Enterprises Inc. at December 31, 20Y8 and 20Y7, is as follows:
| Dec. 31, 20Y8 | Dec. 31, 20Y7 | ||||
| Assets | |||||
| Cash | $70,910 | $86,990 | |||
| 108,960 | 117,270 | ||||
| Merchandise inventory | 155,660 | 145,360 | |||
| Prepaid expenses | 6,340 | 4,400 | |||
| Equipment | 317,080 | 260,420 | |||
| Accumulated |
(82,440) | (63,870) | |||
| Total assets | $576,510 | $550,570 | |||
| Liabilities and |
|||||
| Accounts payable (merchandise creditors) | $121,070 | $115,070 | |||
| Mortgage note payable | 0 | 165,170 | |||
| Common stock, $1 par | 19,000 | 12,000 | |||
| Paid-in capital: Excess of issue price over par-common stock | 260,000 | 155,000 | |||
| 176,440 | 103,330 | ||||
| Total liabilities and stockholders’ equity | $576,510 | $550,570 |
Additional data obtained from the income statement and from an examination of the accounts in the ledger for 20Y8 are as follows:
- Net income, $187,160.
- Depreciation reported on the income statement, $40,180.
- Equipment was purchased at a cost of $78,270, and fully depreciated equipment costing $21,610 was discarded, with no salvage realized.
- The mortgage note payable was not due for six years, but the terms permitted earlier payment without penalty.
- 7,000 shares of common stock were issued at $16 for cash.
- Cash dividends declared and paid, $114,050.
Required:
Prepare a statement of cash flows, using the indirect method. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.
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