Use the following comparative balance sheets and additional information to answer questions (1) through (4). MKH Company Comparative Balance Sheets For the year ended December 31 20X1 20X0 Change Current assets Cash $324,700 $217,600 $107,100 Accounts receivable 132,600 165,200 (32,600) Inventory 175,100 137,200 37,900 Prepaid rent 25,500 14,400 11,100 Total current assets $657,900 $534,400 $123,500 Long-term assets Land $326,400 $345,600 ($19,200) Equipment (net) 321,300 356,300 (35,000) Total long-term assets $647,700 $701,900 $(54,200) Total assets $1,305,600 $1,236,300 $69,300 Current liabilities Accounts payable $145,800 $131,200 $14,600 Salaries payable 18,700 4,800 13,900 Interest payable 32,300 27,200 5,100 Total current liabilities $196,800 $163,200 $33,600 Long-term liabilities Bonds payable $321,400 $469,800 ($148,400) Stockholders' equity Common stock $535,800 $434,900 $100,900 Retained earnings 251,600 168,400 83,200 Total liabilities and equity $1,305,600 $1,236,300 $69,300 Additional Information for MKH Co. in 20X1:1. Net income for year 20X1 was $216,000.2. The company declared and paid a cash dividend of $132,800.3. The only posting to the net equipment account was for depreciation expense of $35,000 (i.e., no equipment was sold).4. MKH sold land worth $19,200 for $8,000 cash.5. The company retired $148,400 worth of bonds payable at the beginning of the year. What was the loss on the sale of land recorded by MKH Company in 20X1? $11,200 $8,000 $0 $19,200 What were MKH Company's cash flows from (for) operating activities in 20X1? $268,200 ($180,300) $279,400 $233,100
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.
Use the following comparative balance sheets and additional information to answer questions (1) through (4).
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MKH Company |
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Comparative Balance Sheets |
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For the year ended December 31 |
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20X1 |
20X0 |
Change |
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Current assets |
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Cash |
$324,700 |
$217,600 |
$107,100 |
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Accounts receivable |
132,600 |
165,200 |
(32,600) |
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Inventory |
175,100 |
137,200 |
37,900 |
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Prepaid rent |
25,500 |
14,400 |
11,100 |
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Total current assets |
$657,900 |
$534,400 |
$123,500 |
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Long-term assets |
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Land |
$326,400 |
$345,600 |
($19,200) |
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Equipment (net) |
321,300 |
356,300 |
(35,000) |
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Total long-term assets |
$647,700 |
$701,900 |
$(54,200) |
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Total assets |
$1,305,600 |
$1,236,300 |
$69,300 |
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Current liabilities |
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Accounts payable |
$145,800 |
$131,200 |
$14,600 |
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Salaries payable |
18,700 |
4,800 |
13,900 |
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Interest payable |
32,300 |
27,200 |
5,100 |
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Total current liabilities |
$196,800 |
$163,200 |
$33,600 |
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Long-term liabilities |
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Bonds payable |
$321,400 |
$469,800 |
($148,400) |
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Common stock |
$535,800 |
$434,900 |
$100,900 |
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251,600 |
168,400 |
83,200 |
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Total liabilities and equity |
$1,305,600 |
$1,236,300 |
$69,300 |
Additional Information for MKH Co. in 20X1:
1. Net income for year 20X1 was $216,000.
2. The company declared and paid a cash dividend of $132,800.
3. The only posting to the net equipment account was for
4. MKH sold land worth $19,200 for $8,000 cash.
5. The company retired $148,400 worth of bonds payable at the beginning of the year.
- What was the loss on the sale of land recorded by MKH Company in 20X1?
$11,200
$8,000
$0
$19,200
- What were MKH Company's cash flows from (for) operating activities in 20X1?
$268,200
($180,300)
$279,400
$233,100
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