Applying Interrelations of Financial Statements Fill in the missing amounts, a through t, for each of the three separate companies. Case 1 Case 2 Case 3 Net income, 2020 $50,400 Answer $162,000 Retained earnings, December 31, 2020 Answer 1,566,000 Answer Retained earnings, December 31, 2019 18,000 1,404,000 458,100 Dividends, 2020 14,400 63,000 Answer Common stock, December 31, 2020 Answer Answer 270,000 Total stockholders’ equity, December 31, 2020 201,600 Answer 864,000 Other comprehensive income, 2020 Answer 0 Answer Accumulated other comprehensive income, December 31, 2019 5,400 0 4,500 Accumulated other comprehensive income, December 31, 2020 3,600 0 Answer Comprehensive income, 2020 Answer Answer 185,400 Total assets, December 31, 2020 Answer 3,960,000 1,584,000 Total assets, excluding cash, December 31, 2020 Answer Answer 1,485,000 Total liabilities, December 31, 2020 165,600 1,620,000 Answer Cash, December 31, 2019 9,000 135,000 Answer Cash, December 31, 2020 18,000 Answer Answer Change in cash, 2020 Answer (18,000) 18,000
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.
Applying Interrelations of Financial Statements
Fill in the missing amounts, a through t, for each of the three separate companies.
| Case 1 | Case 2 | Case 3 | |
|---|---|---|---|
| Net income, 2020 | $50,400 | Answer
|
$162,000 |
| Retained earnings, December 31, 2020 | Answer
|
1,566,000 | Answer
|
| Retained earnings, December 31, 2019 | 18,000 | 1,404,000 | 458,100 |
| Dividends, 2020 | 14,400 | 63,000 | Answer
|
| Common stock, December 31, 2020 | Answer
|
Answer
|
270,000 |
| Total |
201,600 | Answer
|
864,000 |
| Other comprehensive income, 2020 | Answer
|
0 | Answer
|
| Accumulated other comprehensive income, December 31, 2019 | 5,400 | 0 | 4,500 |
| Accumulated other comprehensive income, December 31, 2020 | 3,600 | 0 | Answer
|
| Comprehensive income, 2020 | Answer
|
Answer
|
185,400 |
| Total assets, December 31, 2020 | Answer
|
3,960,000 | 1,584,000 |
| Total assets, excluding cash, December 31, 2020 | Answer
|
Answer
|
1,485,000 |
| Total liabilities, December 31, 2020 | 165,600 | 1,620,000 | Answer
|
| Cash, December 31, 2019 | 9,000 | 135,000 | Answer
|
| Cash, December 31, 2020 | 18,000 | Answer
|
Answer
|
| Change in cash, 2020 | Answer
|
(18,000) | 18,000 |
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