The chief accountant for Grandview Corporation provides you with the company’s 2021 statement of cash flows and income statement. The accountant has asked for your help with some missing figures in the company’s comparative balance sheets. These financial statements are shown next ($ in millions). GRANDVIEW CORPORATION Statement of Cash Flows For the Year Ended December 31, 2021 Cash Flows from Operating Activities: Collections from customers $ 134 Payment to suppliers (44 ) Payment of general & administrative expenses (34 ) Payment of income taxes (25 ) Net cash flows from operating activities $ 31 Cash Flows from Investing Activities: Sale of investments 81 Cash Flows from Financing Activities: Issuance of common stock 15 Payment of dividends (6 ) Net cash flows from financing activities 9 Net increase in cash $ 121 GRANDVIEW CORPORATION Income Statement For the Year Ended December 31, 2021 Sales revenue $ 144 Cost of goods sold 48 Gross profit 96 Operating expenses: General and administrative expense $ 34 Depreciation expense 26 Total operating expenses 60 Operating income 36 Other income: Gain on sale of investments 20 Income before income taxes 56 Income tax expense 13 Net income $ 43 Required: 1. Calculate the missing amounts. 2. Prepare the operating activities section of Grandview’s 2021 statement of cash flows using the indirect method.
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.
16. The chief accountant for Grandview Corporation provides you with the company’s 2021 statement of
| GRANDVIEW CORPORATION Statement of Cash Flows For the Year Ended December 31, 2021 |
|||||||
| Cash Flows from Operating Activities: | |||||||
| Collections from customers | $ | 134 | |||||
| Payment to suppliers | (44 | ) | |||||
| Payment of general & administrative expenses | (34 | ) | |||||
| Payment of income taxes | (25 | ) | |||||
| Net cash flows from operating activities | $ | 31 | |||||
| Cash Flows from Investing Activities: | |||||||
| Sale of investments | 81 | ||||||
| Cash Flows from Financing Activities: | |||||||
| Issuance of common stock | 15 | ||||||
| Payment of dividends | (6 | ) | |||||
| Net cash flows from financing activities | 9 | ||||||
| Net increase in cash | $ | 121 | |||||
| GRANDVIEW CORPORATION Income Statement For the Year Ended December 31, 2021 |
||||||
| Sales revenue | $ | 144 | ||||
| Cost of goods sold | 48 | |||||
| Gross profit | 96 | |||||
| Operating expenses: | ||||||
| General and administrative expense | $ | 34 | ||||
| 26 | ||||||
| Total operating expenses | 60 | |||||
| Operating income | 36 | |||||
| Other income: | ||||||
| Gain on sale of investments | 20 | |||||
| Income before income taxes | 56 | |||||
| Income tax expense | 13 | |||||
| Net income | $ | 43 | ||||
Required:
1. Calculate the missing amounts.
2. Prepare the operating activities section of Grandview’s 2021 statement of cash flows using the indirect method.
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