Explain why the statement of cash flows provides useful information that goes beyond income statement and balance sheet data.
The cash flow statement exhibits information beyond the income statement and the balance sheet. It provides a reconciliation between the opening balance of the cash and cash equivalent and the closing balance of the cash and cash equivalent over the reporting period.
Financial statements are described as the summary report of the organization’s financial position, performance, and cash flows. It is prepared by the management of the company at the end of the reporting period.
A cash flow statement is prepared by an organization to show the movement of cash in the company. It is a component of the financial statements of the company. It is a component of the financial statements of the company. It is prepared to reconcile the balance of the cash and cash equivalent, which is not possible to do from the income statement and balance sheet alone.
For December 31, 20X1, the balance sheet of Baxter Corporation was as follows:
Plant and equipment (gross)
Less: accumulated depreciation
Net plant and equipment
Paid in capital
Total liabilities and stockholder’s equity
Sales for 20X2 were $245,000, and the cost of goods sold was 60 percent of sales. Selling and administrative expense was $24,500. Depreciation expense was 8 percent of plant and equipment (gross) at the beginning of the year. Interest expense for the notes payable was 10 percent, while the interest rate on the bonds payable was 12 percent. This interest expense is based on December 31, 20X1 balances. The tax rate averaged 20 percent.
$2,500 in preferred stock dividends were paid, and $5,500 in dividends were paid to common stockholders. There were 10,000 shares of common stock outstanding.
During 20X2, the cash balance and prepaid expenses balances were
unchanged. Accounts receivable and inventory increased by 10 percent. A new machine was purchased on December 31, 20X2, at a cost of $40,000. Accounts payable increased by 20 percent. Notes payable increased by $6,500 and bonds payable decreased by $12,500, both at the end of the year. The preferred stock, common stock, and paid-in capital in excess of par accounts did not change.
c. Prepare a balance sheet as of December 31, 20X2.
Landers Nursery and Garden Stores has current assets of $220,000 and fixed assets of $170,000. Current liabilities are $80,000 and long-term liabilities are $140,000. There is $40,000 in preferred stock outstanding and the firm has
issued 25,000 shares of common stock. Compute book value (net worth)
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