The net changes in the balance sheet accounts of Linda, Inc. for the year 2021 are shown below: Account Debit Credit Cash $ 217,900 Accounts receivable $ 63,100 Allowance for doubtful accounts 11,700 Inventory 195,900 Prepaid expenses 22,300 Long-term investments 147,000 Land 410,000 Buildings 655,000 Machinery 92,000 Office Equipment 30,000 Accumulated depreciation: Buildings 24,500 Machinery 18,100 Office Equipment 15,000 Accounts payable 183,900 Accrued liabilities 75,000 Dividends payable 128,500 Premium on bonds 37,600 Bonds payable 940,000 Preferred stock ($50 par) 74,400 Common stock ($10 par) 160,000 Additional paid-in capital—common 298,400 Retained earnings 67,500 $1,933,900 $1,933,900 Additional information: 1. Net income $165,500 2. Cash dividends of $128,500 were declared December 15, 2021, payable January 15, 2022. A 5% stock dividend was issued March 31, 2021, when the market value was $24 per share. 3. The long-term investments were sold for $140,500. 4. A building and land which cost $500,500 and had a book value of $355,500 were sold for $407,000. The cost of the land, included in the cost and book value above, was $23,500. 5. The following entry was made to record an exchange of an old machine for a new one: Machinery 156,000 Accumulated Depreciation—Machinery 41,000 Machinery 64,000 Cash 133,000 6. A fully depreciated copier machine which cost $30,000 was written off. 7. Preferred stock of $74,400 par value was redeemed for $92,500. 8. The company sold 12,400 shares of its common stock ($10 par) on June 15, 2021 for $30 a share. There were 88,000 shares outstanding on December 31, 2021. 9. Bonds were sold at 104 on December 31, 2021. 10. Land that was condemned had a book value of $248,000. Proceeds received totaled $115,000. Prepare a statement of cash flows (indirect method). Ignore tax effects.
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 net changes in the balance sheet accounts of Linda, Inc. for the year 2021 are shown below:
| Account | Debit | Credit | ||
| Cash | $ 217,900 | |||
| $ 63,100 | ||||
| Allowance for doubtful accounts | 11,700 | |||
| Inventory | 195,900 | |||
| Prepaid expenses | 22,300 | |||
| Long-term investments | 147,000 | |||
| Land | 410,000 | |||
| Buildings | 655,000 | |||
| Machinery | 92,000 | |||
| Office Equipment | 30,000 | |||
| Buildings | 24,500 | |||
| Machinery | 18,100 | |||
| Office Equipment | 15,000 | |||
| Accounts payable | 183,900 | |||
| Accrued liabilities | 75,000 | |||
| Dividends payable | 128,500 | |||
| Premium on bonds | 37,600 | |||
| Bonds payable | 940,000 | |||
| 74,400 | ||||
| Common stock ($10 par) | 160,000 | |||
| Additional paid-in capital—common | 298,400 | |||
| 67,500 | ||||
| $1,933,900 | $1,933,900 |
| Additional information: | |||||||
| 1. | Net income | $165,500 | |||||
| 2. | Cash dividends of $128,500 were declared December 15, 2021, payable January 15, 2022. A 5% stock dividend was issued March 31, 2021, when the market value was $24 per share. | ||||||
| 3. | The long-term investments were sold for $140,500. | ||||||
| 4. | A building and land which cost $500,500 and had a book value of $355,500 were sold for $407,000. The cost of the land, included in the cost and book value above, was $23,500. | ||||||
| 5. | The following entry was made to record an exchange of an old machine for a new one: | ||||||
| Machinery | 156,000 | ||||||
| Accumulated Depreciation—Machinery | 41,000 | ||||||
| Machinery | 64,000 | ||||||
| Cash | 133,000 | ||||||
| 6. | A fully |
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| 7. | Preferred stock of $74,400 par value was redeemed for $92,500. | ||||||
| 8. | The company sold 12,400 shares of its common stock ($10 par) on June 15, 2021 for $30 a share. There were 88,000 shares outstanding on December 31, 2021. | ||||||
| 9. | Bonds were sold at 104 on December 31, 2021. | ||||||
| 10. | Land that was condemned had a book value of $248,000. Proceeds received totaled $115,000. |
Prepare a statement of cash flows (indirect method). Ignore tax effects.
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