Closure, Inc. has prepared the following comparative statement of financial position for 2019 and 2020: 2020 2019 Equipment $1,260,000 $1,050,000 Accumulated depreciation (450,000) (375,000) Patent 153,000 174,000 Prepaid expenses 18,000 27,000 Inventory 150,000 180,000 Accounts Receivable 159,000 117,000 Cash 297,000 153,000 $1,587,000 $1,326,000 Share capital-preference $ 129,000 $ 66,000 Share premium-preference 582,000 0 Share capital-ordinary 153,000 153,000 Retained earnings 105,000 42,000 Mortgage payable 0 450,000 Accounts payable 120,000 135,000 Accrued liabilities 498,000 480,000 $1,587,000 $1,326,000 Additional Information: 1. The accumulated depreciation account has been credited only for the depreciation expense for the period. 2. The retained earnings account has been charged for cash dividends paid of $138,000 and credited for the net income for the year. Closure, Inc. Income Statement for 2020 is as follows: Sales $1,980,000 Cost of sales 1,089,000 Gross profit 891,000 Operating expenses 690,000 Net income $ 201,000 Prepare a statement of cashflow using the direct method
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Closure, Inc. has prepared the following comparative
|
|
2020 |
2019 |
|
Equipment |
$1,260,000 |
$1,050,000 |
|
|
(450,000) |
(375,000) |
|
Patent |
153,000 |
174,000 |
|
Prepaid expenses |
18,000 |
27,000 |
|
Inventory |
150,000 |
180,000 |
|
Accounts Receivable |
159,000 |
117,000 |
|
Cash |
297,000 |
153,000 |
|
|
$1,587,000 |
$1,326,000 |
|
|
|
|
|
Share capital-preference |
$ 129,000 |
$ 66,000 |
|
Share premium-preference |
582,000 |
0 |
|
Share capital-ordinary |
153,000 |
153,000 |
|
|
105,000 |
42,000 |
|
Mortgage payable |
0 |
450,000 |
|
Accounts payable |
120,000 |
135,000 |
|
Accrued liabilities |
498,000 |
480,000 |
|
|
$1,587,000 |
$1,326,000 |
Additional Information:
1. The accumulated depreciation account has been credited only for the depreciation expense for the period.
2. The retained earnings account has been charged for cash dividends paid of $138,000 and credited for the net income for the year.
Closure, Inc. Income Statement for 2020 is as follows:
|
Sales |
$1,980,000 |
|
Cost of sales |
1,089,000 |
|
Gross profit |
891,000 |
|
Operating expenses |
690,000 |
|
Net income |
$ 201,000 |
Prepare a statement of cashflow using the direct method
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