Statement of Cash Flows The balance sheet of Beach Bum Company for December 31, 2017 and 2018, is as follows: Beach Bum Company Balance Sheet December 31, 2017 and 2018 Assets 2017 2018 Cash $140,350 95,900 Accounts receivable (net) 95,300 102,300 Inventories 165,200 157,900 Prepaid expenses 6,240 5,860 Investment (long-term) 35,700 84,700 Land 75,000 90,000 Buildings 375,000 260,000 Accumulated depreciation – buildings (71,300) (58,300) Machinery and equipment 428,300 428,300 Accumulated depreciation – machinery and equipment (148,500) (138,000) Patents 58,000 65,000 Total Assets $1,159,290 $1,093,660 Liabilities and Stockholders’ Equity Accounts Payable (Merchandise Creditors) 43,500 46,700 Accrued expenses payable (operating expenses) 14,000 12,500 Income taxes payable 7,900 8,400 Dividends payable 14,000 10,000 Mortgage note payable, due in 10 years 40,000 0 Bonds payable 150,000 250,00 Common stock, $30 par 450,000 375,000 Excess of issue price over par – common stock 66,250 41,250 Retained earnings 373,640 349,810 Total liabilities and stockholder’s equity 1,159,290 1,093,660 The income statement for Beach Bum Company follows: Beach Bum Company Income Statement December 31, 2017 Sales $1,100,000 Cost of Merchandise sold 710,000 Gross Profit 390,00 Operating expenses: Depreciation expense 23,500 Patent amortization 7,000 Other operating expenses 196,000 Total Operating expenses 226,500 Income from operations 163,500 Other revenue and expense Gain on sale of investments 11,000 Interest expense (26,000) (15,000) Income before income tax 148,500 Income tax expense 50,000 Net Income 98,500 An examination of the accounting records revealed the following additional information applicable to 2017: Land costing $15,000 was sold for $15,000 A mortgage note was issued for $40,000 A building costing $115,000 was constructed 2,500 shares of common stock were issued at $40 in exchange for the bonds payable Cash dividends declared were $74,670 Instructions: Prepare a statement of cash flows, using the indirect method of reporting cash flows from operating activities Beach Bum Company Statement of Cash Flows – Indirect Method For the year ended December 31, 2017 Cash flows from operating activities: Adjustments to reconcile net income to net cash flow from operating activities: Changes in current operating assets and liabilities: Net Cash flow from operating activities Cash flows from (used for) investing activities: Net cash flow used for investing activities Cash flows from (used for) financing activities Net Cash flow used for financing activities Prepare a statement of cash flows, using the direct method of reporting cash flows from operating activities. For purposes of the direct method, the adjustment to arrive at cash payments for operating expenses includes changes in prepaid expenses. Beach Bum Company Statement of Cash Flows – Direct Method For the year ended December 31, 2017 Cash flows from operating activities: Net cash flow from operating activities: Cash flows from (used for) investing activities: Net cash flow used for investing activities Cash flows from (used for) financing activities: Net cash flow used for financing activities
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.
Statement of Cash Flows
The balance sheet of Beach Bum Company for December 31, 2017 and 2018, is as follows:
|
Beach Bum Company Balance Sheet December 31, 2017 and 2018 |
||
|
Assets |
2017 |
2018 |
|
Cash |
$140,350 |
95,900 |
|
Accounts receivable (net) |
95,300 |
102,300 |
|
Inventories |
165,200 |
157,900 |
|
Prepaid expenses |
6,240 |
5,860 |
|
Investment (long-term) |
35,700 |
84,700 |
|
Land |
75,000 |
90,000 |
|
Buildings |
375,000 |
260,000 |
|
|
(71,300) |
(58,300) |
|
Machinery and equipment |
428,300 |
428,300 |
|
Accumulated depreciation – machinery and equipment |
(148,500) |
(138,000) |
|
Patents |
58,000 |
65,000 |
|
Total Assets |
$1,159,290 |
$1,093,660 |
|
Liabilities and |
||
|
Accounts Payable (Merchandise Creditors) |
43,500 |
46,700 |
|
Accrued expenses payable (operating expenses) |
14,000 |
12,500 |
|
Income taxes payable |
7,900 |
8,400 |
|
Dividends payable |
14,000 |
10,000 |
|
Mortgage note payable, due in 10 years |
40,000 |
0 |
|
Bonds payable |
150,000 |
250,00 |
|
Common stock, $30 par |
450,000 |
375,000 |
|
Excess of issue price over par – common stock |
66,250 |
41,250 |
|
Retained earnings |
373,640 |
349,810 |
|
Total liabilities and stockholder’s equity |
1,159,290 |
1,093,660 |
The income statement for Beach Bum Company follows:
|
Beach Bum Company Income Statement December 31, 2017 |
||
|
Sales |
$1,100,000 |
|
|
Cost of Merchandise sold |
710,000 |
|
|
Gross Profit |
390,00 |
|
|
Operating expenses: |
||
|
Depreciation expense |
23,500 |
|
|
Patent amortization |
7,000 |
|
|
Other operating expenses |
196,000 |
|
|
Total Operating expenses |
226,500 |
|
|
Income from operations |
163,500 |
|
|
Other revenue and expense |
||
|
Gain on sale of investments |
11,000 |
|
|
Interest expense |
(26,000) |
(15,000) |
|
Income before income tax |
148,500 |
|
|
Income tax expense |
50,000 |
|
|
Net Income |
98,500 |
An examination of the accounting records revealed the following additional information applicable to 2017:
- Land costing $15,000 was sold for $15,000
- A mortgage note was issued for $40,000
- A building costing $115,000 was constructed
- 2,500 shares of common stock were issued at $40 in exchange for the bonds payable
- Cash dividends declared were $74,670
Instructions:
- Prepare a statement of cash flows, using the indirect method of reporting cash flows from operating activities
|
Beach Bum Company Statement of Cash Flows – Indirect Method For the year ended December 31, 2017 |
||
|
Cash flows from operating activities: |
||
|
Adjustments to reconcile net income to net cash flow from operating activities: |
||
|
Changes in current operating assets and liabilities: |
||
|
Net Cash flow from operating activities |
||
|
Cash flows from (used for) investing activities: |
||
|
Net cash flow used for investing activities |
||
|
Cash flows from (used for) financing activities |
||
|
Net Cash flow used for financing activities |
||
- Prepare a statement of cash flows, using the direct method of reporting cash flows from operating activities. For purposes of the direct method, the adjustment to arrive at cash payments for operating expenses includes changes in prepaid expenses.
|
Beach Bum Company Statement of Cash Flows – Direct Method For the year ended December 31, 2017 |
||
|
Cash flows from operating activities: |
||
|
Net cash flow from operating activities: |
||
|
Cash flows from (used for) investing activities: |
||
|
Net cash flow used for investing activities |
||
|
Cash flows from (used for) financing activities: |
||
|
Net cash flow used for financing activities |
||
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