The comparative balance sheet of Merrick Equipment Co. for December 31, 20Y9 and 20Y8, is as follows: Dec. 31, 20Y9 Dec. 31, 20Y8 Assets Cash $296,640 $278,810 Accounts receivable (net) 107,460 100,130 Inventories 303,350 296,470 Investments 0 114,860 Land 155,600 0 Equipment 334,700 262,120 Accumulated depreciation—equipment (78,360) (70,680) Total assets $1,119,390 $981,710 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors) $202,610 $193,400 Accrued expenses payable (operating expenses) 20,150 25,520 Dividends payable 11,190 8,840 Common stock, $10 par 60,450 48,100 Paid-in capital in excess of par—common stock 227,240 133,510 Retained earnings 597,750 572,340 Total liabilities and stockholders’ equity $1,119,390 $981,710 Additional data obtained from an examination of the accounts in the ledger for 20Y9 are as follows: Equipment and land were acquired for cash. There were no disposals of equipment during the year. The investments were sold for $134,390 cash. The common stock was issued for cash. There was a $71,550 credit to Retained Earnings for net income. There was a $46,140 debit to Retained Earnings for cash dividends declared. Required: Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating 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.
The comparative balance sheet of Merrick Equipment Co. for December 31, 20Y9 and 20Y8, is as follows:
| Dec. 31, 20Y9 | Dec. 31, 20Y8 | |||
| Assets | ||||
| Cash | $296,640 | $278,810 | ||
| Accounts receivable (net) | 107,460 | 100,130 | ||
| Inventories | 303,350 | 296,470 | ||
| Investments | 0 | 114,860 | ||
| Land | 155,600 | 0 | ||
| Equipment | 334,700 | 262,120 | ||
| (78,360) | (70,680) | |||
| Total assets | $1,119,390 | $981,710 | ||
| Liabilities and |
||||
| Accounts payable (merchandise creditors) | $202,610 | $193,400 | ||
| Accrued expenses payable (operating expenses) | 20,150 | 25,520 | ||
| Dividends payable | 11,190 | 8,840 | ||
| Common stock, $10 par | 60,450 | 48,100 | ||
| Paid-in capital in excess of par—common stock | 227,240 | 133,510 | ||
| 597,750 | 572,340 | |||
| Total liabilities and stockholders’ equity | $1,119,390 | $981,710 |
Additional data obtained from an examination of the accounts in the ledger for 20Y9 are as follows:
- Equipment and land were acquired for cash.
- There were no disposals of equipment during the year.
- The investments were sold for $134,390 cash.
- The common stock was issued for cash.
- There was a $71,550 credit to Retained Earnings for net income.
- There was a $46,140 debit to Retained Earnings for cash dividends declared.
Required:
Prepare a statement of
| Merrick Equipment Co. | ||
| Statement of Cash Flows | ||
| For the Year Ended December 31, 20Y9 | ||
| Cash flows from (used for) 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 from financing activities | ||
| $ | ||
| Cash balance, January 1, 20Y9 | ||
| Cash balance, December 31, 20Y9 | $ |
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