FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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 a) Prepare the statement of cash flow for the year ended 31 December 2020, using indirect method for the operating cash flow.

UPPER COMPANY
INCOME STATEMENT
For the Year Ended 31 December 2020
Sales
$1,697,900
$408,500
$1,289,400
Cost of goods sold
Gross profit
Administrative expenses (6)
Selling expenses
Other income: Gain on sale of trading securities (1)
Income from operations
Interest expense
$545,000
$215,000
$760,000
$19,500
548,900
$14,000
$534,900
$94,900
$440,000
Income before income taxes
Income taxes
Net income
Notes
(1) The trading securities held at 31 December 2019 were all sold during 2020.
(2) Increase of short term notes payable represents short-term borrowing from bank.
(3) There are additions of $2,200,000 to property, plant and equipment during 2020. They are
partly financed by the issue of long term notes payable. No other long term notes payable
are issued for other purpose.
(4) The company has issued new shares for cash in 2020.
(5) Dividend of $20,000 was declared on 1 December 2020, payable on 31 January 2021.
(6) Included in administrative expenses are depreciation expense of $147,000.
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Transcribed Image Text:UPPER COMPANY INCOME STATEMENT For the Year Ended 31 December 2020 Sales $1,697,900 $408,500 $1,289,400 Cost of goods sold Gross profit Administrative expenses (6) Selling expenses Other income: Gain on sale of trading securities (1) Income from operations Interest expense $545,000 $215,000 $760,000 $19,500 548,900 $14,000 $534,900 $94,900 $440,000 Income before income taxes Income taxes Net income Notes (1) The trading securities held at 31 December 2019 were all sold during 2020. (2) Increase of short term notes payable represents short-term borrowing from bank. (3) There are additions of $2,200,000 to property, plant and equipment during 2020. They are partly financed by the issue of long term notes payable. No other long term notes payable are issued for other purpose. (4) The company has issued new shares for cash in 2020. (5) Dividend of $20,000 was declared on 1 December 2020, payable on 31 January 2021. (6) Included in administrative expenses are depreciation expense of $147,000.
Shown below are the comparative statement of financial position, income statement and statement
of retained earnings for the year ended 31 December 2020.
UPPER COMPANY
Statement of Financial Position
31 December 2020
2019
2020
Assets
$80,000
$50,000
$40,000
$50,000
$17,000
$850,000
$20,000
Cash and cash equivalents
Accounts receivable
Inventory
Investment in trading securities (1)
Property, plant and equipment (net
of accumulated depreciation) (2)
$600,000
$820,000
$2,653.000
$3,540,000
Totals
Liabilities & Equity
Notes payable (short-term) (2)
Accounts payable
Salary payable
Interest payable
Dividend payable
Notes payable (long-term) (3)
Share capital (4)
Retained earnings
$30,000
$20,000
$25,000
$40,000
$390,000
$200,000
$115,000
$820,000
$1,550,000
$63,000
$12,000
$20,000
$20,000
$640,000
$700,000
$535,000
$3,540,000
Totals
UPPER COMPANY
Retained Earnings Statement
For the Year Ended 31 December 2020
Retained earnings, 1 January 2020
$115,000
$440,000
$20,000
Add: Net income
Deduct: Dividends declared (5)
Retained earnings, 31 December 2020
$420,000
$535,000
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Transcribed Image Text:Shown below are the comparative statement of financial position, income statement and statement of retained earnings for the year ended 31 December 2020. UPPER COMPANY Statement of Financial Position 31 December 2020 2019 2020 Assets $80,000 $50,000 $40,000 $50,000 $17,000 $850,000 $20,000 Cash and cash equivalents Accounts receivable Inventory Investment in trading securities (1) Property, plant and equipment (net of accumulated depreciation) (2) $600,000 $820,000 $2,653.000 $3,540,000 Totals Liabilities & Equity Notes payable (short-term) (2) Accounts payable Salary payable Interest payable Dividend payable Notes payable (long-term) (3) Share capital (4) Retained earnings $30,000 $20,000 $25,000 $40,000 $390,000 $200,000 $115,000 $820,000 $1,550,000 $63,000 $12,000 $20,000 $20,000 $640,000 $700,000 $535,000 $3,540,000 Totals UPPER COMPANY Retained Earnings Statement For the Year Ended 31 December 2020 Retained earnings, 1 January 2020 $115,000 $440,000 $20,000 Add: Net income Deduct: Dividends declared (5) Retained earnings, 31 December 2020 $420,000 $535,000
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