Thai Company was formed on January 1, 20X1. The company's accountant prepared the following income statement, statement of retained earnings, and balance sheet at the conclusion of the first full year of operations. Mr. Thai desires for the company to declare and pay a dividend equivalent to the company's net income for the year. THAI COMPANY Income Statement For the Year Ending December 31, 20X1 Revenues Services to customers 105,000 Expenses Wages 2$ 45,000 Rent 18,000 3,000 Net income 42,000 THAI company Balance Sheet December 31, 20X1 Assets Cash 6,000 Accounts receivable 22,500 Equipment 75,000 Total assets 103,500 Liabilities Rent payable 1,500 Notes payable 45,000 Total liabilities 46,500 Stockholders' equity Capital stock 15,000 Retained earnings 42,000 Total stockholders' equity 57,000 Total liabilities and equity 103,500 a) Is the company currently able to declare and pay the dividend? Why or why not? b) Explain why net income can differ from cash provided by operations. c) In addition to operating activities, what other "categories" of business activity can generate or expend cash? Provide examples for each category.
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.
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 3 images
