We're continuing to analyze the Nybrostrand as in assignments 1, 2, and 3.
Based on additional information added in assignments 2 and 3, please use the information below to make a statement of cash flows.
- The beginning cash balance is $30,000.
- Use the Net Income from Module 2.
- Use depreciation expense of Module 1.
- During the year 14, Inventory increases by $42,500.
- During the year 14, Land increases by $400,000.
- During the year 14, Long-Term Debts increases $360,000.
- During the year 14, the company made a secondary offering of stock and raised an additional $180,000, which includes $150,000 of Paid-in capital.
- During the year 14, the company had paid $15,000 in dividends.
Using the Indirect Method, prepare a statement of cash flows for the company in good format and compare two financial statements between the income statement and statement of cash flows. You do not need to include the income statement or balance sheet.
This is a Signature Assignment Expectation for Accounting 201
There are 2 specific learning outcomes: 1) apply business theories, models and concepts to guide analysis of problems and situations and 2) utilize data driven analysis in making business decisions.
In this Session Long Project number 4, our emphasis will be on understanding the statement of cash flows. You will be summarizing all of what you learned in the overall class and discussions.
Assignment Expectations
- Create a statement of cash flows and compare cash flows with net income.
- Write 3-4 pages, showing computations and discussing the results.
- List supporting references and cite your sources in APA format in text and listed at the end on a separate page.
- Use appropriate writing style (organization, grammar, and spelling).
- The paper will be typed in Times New Roman, Font 12, Double Spaced.
Information gathered from Assignment 1:
This paper gives an analysis of Nybrostrand Company with a view to show the financial position and the net profits available to the shareholders. The study aims to show the company's financial profile to attract would-be investors and show conformity to internationally accepted accounting standards.
Nybrostrand Company
Income Statement
For the year ended December 31, 2014
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Account
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Debit
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Credit
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Revenue
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$586,000
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Cost of goods sold
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$307,000
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|
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Gross Profit
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$279,000
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|
|
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Expenses
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|
|
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Marketing
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$4,500
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|
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Depreciation Expense
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$24,350
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|
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Insurance
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$1,400
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|
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Property taxes
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$16,900
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|
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Rent
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$28,000
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|
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Salaries
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$78,500
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|
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Utilities
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$6,700
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$160,350
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Net Profit
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$118,650
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About the income statement shown above, the company is presumed to be successful. The net profit is calculated in this order. All the expenses are summed up then they are subtracted from the revenues or sales figure(Maynard). This is the ultimate net profit. On the other hand, the gross profit is calculated when the cost of goods sold is subtracted from revenues. The cost of sales is the amount got from the addition of opening stock, cost of goods sold, less returns inwards. Expenses are born in an organization as a result of running the business on a day-to-day basis. These expenses are items such as depreciation charges, rents and salaries to the company staff.
Retained earnings
Accounts payable 78,000
Common Stock 10,000
Long-Term Debt 127,000
Paid in Capital 50,000
Revenues 586,000
Total 851,000
Retained earnings = 982,850 - 851,000
=131,850
A statement of financial position or balance sheet shows the status of an organization at a particular date of operation. The assets reflect the owners' share in the business whereas the liabilities and equity show contributions from outsiders(Stickney, Weil and Schipper). Equity capital is money contributed as a result of floating shares in a stock exchange market. The two statements play a major role to the organization, and other stakeholders as governments, suppliers, and customers.
Nybrostrand Company
Balance Sheet
As of December 31, 2014
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Assets
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Liabilities
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Current Assets
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Current Liabilities
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Cash
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$30,000
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Accounts payable
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$78,000
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Accounts Receivable
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$36,500
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$78,000
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Inventory
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$34,000
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Long Term Liabilities
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$100,500
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Long-term debt
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$127,000
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Fixed Assets
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$127,000
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Equipment
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$415,000
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Owners' Equity
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Land
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-
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Retained earnings
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$131,850
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Common Stock
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$10,000
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Paid-in capital
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$50,000
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$191850
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Total Assets
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$515,500
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Total Liabilities and Owners' Equity
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$396,850
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Information gathered from Assignment 2:
Nybrostrand Company: Income Statements
This excerpt gives an analysis of Nybrostrand Company with a view to showcasing the underlying bases, concepts, principles and conventions regarding the income statement. The income statement gives a view of the net profit position after the deduction of expenses. It is a tool used by all stakeholders in a business for decision-making. Consequently, it is a material document to stakeholders since the omission or misstatement affects decision-making. Additionally, materiality depends on the nature and size of the item. Upon preparation of the income statement, it should present a true and fair view of the set of accounts used under the accounting cycle(Rajasekaran and Lalitha).
Nybrostrand Company
Income Statement
For the Year Ended on 31 December 2014
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Account
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Debit
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Credit
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Revenue
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586,000
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Cost of goods sold
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222,000
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Gross Profit
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364,000
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Expenses
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|
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Marketing
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4,500
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Depreciation Expense
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24,350
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Insurance
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1,400
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|
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Property taxes
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16,900
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Rent
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28,000
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Salaries
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78,500
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|
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Utilities
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6,700
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160,350
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Net Profit
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203,650
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It is significant to observe international accounting standards. To commence, they add credibility to financial statements in case of foreign capital sourcing, the statements can be relied in stock market quotations and they facilitate communication between the enterprise and any foreign branches. Accounting concepts are principally broad assumptions that underlie the periodic preparation of financial records. These concepts include; matching concept, prudence concept and accrual concept to mention a few(Fridsday and Alvarez).
According to the accepted accounting principles (GAAP) in conjunction with Financial Accounting Standards Board (IASB), items that should be recognized within the same period are revenues and. This is the cause and effect relationship where records are made when transactions relate. On the other hand, accrual accounting demands that revenues and expenses need to be recognized when they are earned or incurred and not when cash is realized(Skonieczny). For instance, the bookkeeper is supposed to record actual commitments in the books of account to reflect a true and fair view. The $ 42, 500 purchase amount in recorded when it is incurred. In this case, this sum is subtracted from the cost of goods sold.
Cost of goods sold 307, 000
Purchases (42,500)
264, 500
At the year-end, closing inventory is an amount subtracted from the cost of goods available for sale. In this scenario, the bookkeeper omitted this amount of $ 42, 500 and upon the realization it is adjusted by deducting the figure to get the gross profit.
Cost of goods sold 264, 500
Purchases (42,500)
222, 000
Ultimately, the previous income statement gross profit figure was understated. The omissions made by the bookkeeper influenced the decision making by all users of the financial statement. Under this calculation, the income statement for Nybrostrand gives a true and fair view and can be relied effectively for decision-making(Skonieczny).
Information from Assignment 3:
To identify whether a company is making progress or to determine if there are problems, a balance sheet can be used to identify the various effects of individual items listed. With the Nybrostrand Company, a balance sheet can help in determining their potential success or failure by identifying various elements categorized within the balance sheet.
Keywords: balance sheet, paid-in capital, retained earnings, accounts payable, dividends
The balance sheet or statement of financial position is a tool used by the company and stakeholders alike for varied reasons. To start with, it is the balance sheet that shows how the company finances are utilized. Secondly, to the creditors, it is by the balance sheet that the company can show it can pay up the obligations that accrue. Consequent upon this, the investors study the balance sheets and place significant reliance on it in a bid to place their finances in the form of owning shares(Rajasekaran and Lalitha).
The tax authorities use the balance sheets to compute the amount of tax deducted. To the supporters of the company, the balance sheet is used as a performance indicator as when the assets and liabilities are not well balanced there is a form of mismanagement to the directors. Similarly, in the listing on the stock market, the company balance sheet is used to obtain additional credit, and it is used to boost the credibility of the financial documents(Fridsday and Alvarez).
Nybrostrand Company
Balance Sheet/ Statement of Financial Position
As at 31st December 2014
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Assets
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Liabilities
|
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Current Assets
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Current Liabilities
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Cash
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30,000
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Accounts payable
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438,000
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Accounts Receivable
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36,500
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438,000
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Inventory
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34,000
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Long-Term Liabilities
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100,500
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Long-term debt
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127,000
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Fixed Assets
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127,000
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Equipment
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415,000
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Owners' Equity
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Land
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400,000
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Retained earnings
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116,850
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Common Stock
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10,000
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Paid-in capital
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200,000
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326,850
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Total Assets
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815,500
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Total Liabilities and Owners' Equity
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891,850
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The company statement of financial position shows disparities owing to the prevalent cases in question. To commence, in the calculation of the non-current assets, the costs are as follows:
Cost Accumulated Depreciation Net Book Value
Land 400, 000 - 400, 000
Equipment - - 415, 000
The current liabilities as per the calculations contain no changes that are material. This is when the omission or misstatement contain no effect on the decision-making process. Therefore, they maintain the values as before.
Current liabilities are sources of capital not contributed by the owners and in the event the company is liable to pay for the money spent. The cost of the acquisition of the parcel of land for investment by the company is $ 400, 000. This is obtained through the use of a bank note. $ 40, 000 is already paid, and the remaining sum is obtained through the bank. Therefore, the amount $360, 000 will increase the account payable to $ 438, 000. Paid in capital is money contributed by members of the public who subscribe to buy shares from Nybrostrand Company. The fully issued share capital amounts to $180, 000. However, only $150, 000 is paid in capital. This means the remaining $30, 000 may be called out on first and final call or either is not subscribed to or not paid up. Therefore, paid in capital will increase to a figure of $200, 000 through the addition of $50, 000(Skonieczny).
The amount of retained earnings is computed as follows:
Retained earnings
Accounts payable 78,000
Common stock 10,000
Long-term debt 127,000
Paid in capital 50,000
Revenues 586,000
Total 851,000
Retained earnings = 982,850 - 851,000
=131,850
Dividends possess the effect of reducing the figure of retained earnings since shareholders are paid from the figure of retained earnings. Therefore, $15, 000 is subtracted from the figure $131, 850 to arrive at $116, 850.