Required: 1 Prepare the journal entries to record the transactions as provided for by the additional information. This will give a hint on how cash was affected specially for investing and financing activities. 2. Prepare the statement of cash flows for Happy Hearts Company for the year ended December 31, 2021.
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.
![5. The entity borrowed P400,000 from the bank to be paid in June 30, 2022.
6. Share capital at par value of P400,000 was issued for cash at a premium of P100,000.
7. The treasury shares were re-issued for P130,000 cash.
8. The patent was fully amortized.
Required:
1 Prepare the journal entries to record the transactions as provided for by the additional
information. This will give a hint on how cash was affected specially for investing and
financing activities.
2. Prepare the statement of cash flows for Happy Hearts Company for the year ended
December 31, 2021.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2a49d2b5-be93-4e9b-8518-841a43839a2d%2F542c66eb-104a-4092-82b6-95422a8ceda9%2Frygo5ss_processed.jpeg&w=3840&q=75)
![Comprehensive Problem
Happy Hearts Company provided the following statements of financial position at year-end and
other financial data relating to activities during the current year
2021
2020
200,000
1,040,000
600,000
1,100,000
150,000
1,200,000
110,000
300,000
3,400,000
(900,000)
Cash and cash equivalents
Accounts receivable, net of allowance
Trade notes payable
Inventory
Prepaid expenses
Investment in equity securities, at cost
Property, plant and equipment
Accumulated depreciation
200,000
1,360,000
120,000
500,000
2,000,000
(600,000)
Patent
80.000
4.900.000
Total
5.960.000
Accounts payable
Trade notes payable
Accrued expenses
880,000
60,000
100,000
400,000
3,000,000
530,000
990,000
840,000
240,000
330,000
Notes payable (short-term debt)
Share capital, P100 par
Share premium
Retained earnings
Treasury shares, at cost
2,400,000
400,000
790,000
(100,000)
4.900.000
Total
5.960.000
The statement of retained earnings for the year ended December 31, 2021 showed the
following
Retained earnings, January 1
Net income
790,000
1.000.000
1,790,000
(800.000)
990 000
Total
Cash dividends paid
Retained earnings, December 31
Additional information:
1. The company sold an investment in equity securities for P240,000 cash. There was no
other transaction affecting the investment in equity securities.
2. Land was purchased in the current year for P1,200,000 paying P1,000,000 cash and
issuing P200,000 share capital at par value.
3. Equipment costing P200,000 and having a carrying amount of P80,000 was sold for
P60,000 cash
4. Equipment of P400,000 was purchased for cash.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2a49d2b5-be93-4e9b-8518-841a43839a2d%2F542c66eb-104a-4092-82b6-95422a8ceda9%2Fxg9mvpn_processed.jpeg&w=3840&q=75)
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