Problem 2: ABC Company was formed on January 1, 2020. The entity reported the following financial statements pertaining to the first year of operations: Income Statement Sales Cost of goods sold Inventory - January 1 Purchases P5,000,000 P1,000,000 _3.100.000 P4,100,000 ( 900.000) 3.200.000 Goods available for sale Inventory - December 31 Gross profit Operating expenses Expenses excluding depreciation Depreciation Income before income tax Less: Income tax expense Net Income P1,800,000 P 700,000 100.000 800.000 P1,000,000 350.000 P 650,000 Statement of Financial Position Assets Cash Accounts receivable Inventory Land P 500,000 600,000 900,000 800,000 Equipment (Life – 10 years) Accumulated depreciation Total assets P1,000,000 100.000 900.000 P3.700,000 Liabilities and Shareholders' Equity Accounts payable Notes payable Income tax payable P 500,000 400,000 350.000 P1,250,000 Share capital Retained Earnings P2,000,000 P 650,000 ( 200,000) Net Income Dividends 450.000 2.450.000 Total liabilities and shareholders' equity P3,700,000 Current cost information on December 31, 2020: Cost of goods sold at average current cost Inventory P3,500,000 1,000,000 1,500,000 1,600,000 Land Equipment Required: In a restated set of financial statements prepared in accordance with the current cost accounting, how much would appear as
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.
1. Realized holding gain *
2. Unrealized holding gain *
3. Net income *
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