The December 31, Year 4, balance sheet for Burdette Corporation is presented here. These are the only accounts on Burdette’s balance sheet. Amounts indicated by question marks (?) can be calculated using the following additional information: BURDETTE CORPORATION Balance Sheet As of December 31, Year 4 Assets Cash $ 31,000 Accounts receivable (net) ? Inventory ? Property, plant, and equipment (net) 298,000 $ 442,000 Liabilities and Stockholders’ Equity Accounts payable (trade) $ ? Income taxes payable (current) 31,000 Long-term debt ? Common stock 304,000 Retained earnings ? $ ? Additional Information Current ratio (at year end) 1.8 to 1.0 Total liabilities ÷ Total stockholders’ equity 70 % Gross margin percentage 40 % Inventory turnover (Cost of goods sold ÷ Ending inventory) 11.6 times Gross margin for Year 4 $ 319,000 Required a. Compute the balance in trade accounts payable as of December 31, Year 4. b. Compute the balance in retained earnings as of December 31, Year 4. c. Compute the balance in the inventory account as of December 31, Year 4. (Assume that the level of inventory did not change from last year.)
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 December 31, Year 4,
| BURDETTE CORPORATION Balance Sheet As of December 31, Year 4 |
|||
| Assets | |||
| Cash | $ | 31,000 | |
| ? | |||
| Inventory | ? | ||
| Property, plant, and equipment (net) | 298,000 | ||
| $ | 442,000 | ||
| Liabilities and |
|||
| Accounts payable (trade) | $ | ? | |
| Income taxes payable (current) | 31,000 | ||
| Long-term debt | ? | ||
| Common stock | 304,000 | ||
| ? | |||
| $ | ? | ||
| Additional Information | |||
| 1.8 to 1.0 | |||
| Total liabilities ÷ Total stockholders’ equity | 70 | % | |
| Gross margin percentage | 40 | % | |
| Inventory turnover (Cost of goods sold ÷ Ending inventory) | 11.6 | times | |
| Gross margin for Year 4 | $ | 319,000 | |
Required
a. Compute the balance in trade accounts payable as of December 31, Year 4.
b. Compute the balance in retained earnings as of December 31, Year 4.
c. Compute the balance in the inventory account as of December 31, Year 4. (Assume that the level of inventory did not change from last year.)
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