Williams Company began operations in January 2019 with two operating (selling) departments and one service (office) department. Its departmental income statements follow. WILLIAMS COMPANY Departmental Income Statements For Year Ended December 31, 2019 Clock Mirror Combined Sales $ 135,000 $ 57,500 $ 192,500 Cost of goods sold 66,150 35,650 101,800 Gross profit 68,850 21,850 90,700 Direct expenses Sales salaries 20,050 7,000 27,050 Advertising 1,210 525 1,735 Store supplies used 925 425 1,350 Depreciation—Equipment 1,510 325 1,835 Total direct expenses 23,695 8,275 31,970 Allocated expenses Rent expense 7,020 3,780 10,800 Utilities expense 2,925 1,575 4,500 Share of office department expenses 10,500 4,500 15,000 Total allocated expenses 20,445 9,855 30,300 Total expenses 44,140 18,130 62,270 Net income $ 24,710 $ 3,720 $ 28,430 Williams plans to open a third department in January 2020 that will sell paintings. Management predicts that the new department will generate $51,500 in sales with a 55% gross profit margin and will require the following direct expenses: sales salaries, $8,050; advertising, $825; store supplies, $525; and equipment depreciation, $225. It will fit the new department into the current rented space by taking some square footage from the other two departments. When opened, the new Painting department will fill one-fifth of the space presently used by the Clock department and one-fourth used by the Mirror department. Management does not predict any increase in utilities costs, which are allocated to the departments in proportion to occupied space (or rent expense). The company allocates office department expenses to the operating departments in proportion to their sales. It expects the Painting department to increase total office department expenses by $8,000. Since the Painting department will bring new customers into the store, management expects sales in both the Clock and Mirror departments to increase by 8%. No changes for those departments’ gross profit percents or their direct expenses are expected except for store supplies used, which will increase in proportion to sales. Required: Prepare departmental income statements that show the company’s predicted results of operations for calendar-year 2020 for the three operating (selling) departments and their combined totals. (Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)
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.
Williams Company began operations in January 2019 with two operating (selling) departments and one service (office) department. Its departmental income statements follow.
| WILLIAMS COMPANY Departmental Income Statements For Year Ended December 31, 2019 |
|||||||||
| Clock | Mirror | Combined | |||||||
| Sales | $ |
135,000 |
$ | 57,500 | $ | 192,500 | |||
| Cost of goods sold | 66,150 | 35,650 | 101,800 | ||||||
| Gross profit | 68,850 | 21,850 | 90,700 | ||||||
| Direct expenses | |||||||||
| Sales salaries | 20,050 | 7,000 | 27,050 | ||||||
| Advertising | 1,210 | 525 | 1,735 | ||||||
| Store supplies used | 925 | 425 | 1,350 | ||||||
| 1,510 | 325 | 1,835 | |||||||
| Total direct expenses | 23,695 | 8,275 | 31,970 | ||||||
| Allocated expenses | |||||||||
| Rent expense | 7,020 | 3,780 | 10,800 | ||||||
| Utilities expense | 2,925 | 1,575 | 4,500 | ||||||
| Share of office department expenses | 10,500 | 4,500 | 15,000 | ||||||
| Total allocated expenses | 20,445 | 9,855 | 30,300 | ||||||
| Total expenses | 44,140 | 18,130 | 62,270 | ||||||
| Net income | $ | 24,710 | $ | 3,720 | $ | 28,430 | |||
Williams plans to open a third department in January 2020 that will sell paintings. Management predicts that the new department will generate $51,500 in sales with a 55% gross profit margin and will require the following direct expenses: sales salaries, $8,050; advertising, $825; store supplies, $525; and equipment depreciation, $225. It will fit the new department into the current rented space by taking some square footage from the other two departments. When opened, the new Painting department will fill one-fifth of the space presently used by the Clock department and one-fourth used by the Mirror department. Management does not predict any increase in utilities costs, which are allocated to the departments in proportion to occupied space (or rent expense). The company allocates office department expenses to the operating departments in proportion to their sales. It expects the Painting department to increase total office department expenses by $8,000. Since the Painting department will bring new customers into the store, management expects sales in both the Clock and Mirror departments to increase by 8%. No changes for those departments’ gross profit percents or their direct expenses are expected except for store supplies used, which will increase in proportion to sales.
Required:
Prepare departmental income statements that show the company’s predicted results of operations for calendar-year 2020 for the three operating (selling) departments and their combined totals. (Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)
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