Prepare the statement of cash flows for Bowers Corporation for the year ended December 31, 20x2. Present cash flows from operating activities using the direct 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.
The comparative balance sheets for 20x2 and 20x1 and the income statement for 20x2 are given below for Bowers Corporaion. Additional information from Bowers' accounting records is also provided.
| Bowers Corporation Comparative Balance Sheets December 31, 20x2 and 20x1 ($ in thousands) |
||||||||
| 20x2 | 20x1 | |||||||
| Assets | ||||||||
| Cash | $ | 72 | $ | 35 | ||||
| Accounts receivable | 79 | 80 | ||||||
| Short-term investment | 30 | 10 | ||||||
| Inventory | 79 | 75 | ||||||
| Land | 54 | 65 | ||||||
| Buildings and equipment | 510 | 410 | ||||||
| Less: |
(121 | ) | (80 | ) | ||||
| $ | 703 | 595 | ||||||
| Liabilities | ||||||||
| Accounts payable | $ | 27 | $ | 36 | ||||
| Salaries payable | 4 | 6 | ||||||
| Interest payable | 5 | 2 | ||||||
| Income tax payable | 6 | 10 | ||||||
| Notes payable | 0 | 20 | ||||||
| Bonds payable | 150 | 110 | ||||||
| Shareholders’ Equity | ||||||||
| Common stock | 250 | 210 | ||||||
| Paid-in capital—excess of par | 145 | 105 | ||||||
| 116 | 96 | |||||||
| $ | 703 | $ | 595 | |||||
| Bowers Corporation Income Statement For Year Ended December 31, 20x2 ($ in thousands) |
||||||
| Revenues: | ||||||
| Sales revenue | $ | 350 | ||||
| Expenses: | ||||||
| Cost of goods sold | $ | 140 | ||||
| Salaries expense | 53 | |||||
| Depreciation expense | 41 | |||||
| Interest expense | 10 | |||||
| Loss on sale of land | 6 | |||||
| Income tax expense | 50 | 300 | ||||
| Net income | $ | 50 | ||||
Hint: For purposes of the statement of
Additional information from the accounting records:
- Land that originally cost $11,000 was sold for $5,000.
- The common stock of Hawkeye Company was purchased for $20,000 as a short-term investment not classified as a cash equivalent.
- New equipment was purchased for $100,000 cash.
- A $20,000 note was paid at maturity on January 1.
- On January 1, 20x2, bonds were sold at their $40,000 face value.
- Common stock ($40,000 par) was sold for $80,000.
- Net income was $50,000 and cash dividends of $30,000 were paid to shareholders.
- All inventory purchases are on credit and all debits to accounts payable reflect cash payments for inventory.
Required:
Prepare the statement of cash flows for Bowers Corporation for the year ended December 31, 20x2. Present cash flows from operating activities using the direct method. (Amounts to be deducted should be indicated with a minus sign. Enter your answers in thousands (i.e., 10,000 should be entered as 10).)
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