Tony Matheson plans to graduate from college in May 2012 after spending four yea
ID: 2362683 • Letter: T
Question
Tony Matheson plans to graduate from college in May 2012 after spending four years earning a degree in sports and recreation management. Since beginning T-ball at age five, he’s been actively involved in sports and enjoys the outdoors. Each summer growing up, he and his would spend two weeks at a father/son outdoor camp. These fond memories are part of the reason he chose his major. He wants to remain involved in these outdoor activities and provide others with the same adventures he was able to share with his dad. He decides to start an outdoor adventure company. However, he’s not sure he has the business background necessary to do this.This is where Suzie Ramos can help. Suzie also plans to graduate in May 2012 with a major in business. Suzie and Tony first met their sophomore year and have been friends ever since as they share a strong interest in sports and outdoor activities.
They decide to name their company Great Adventures. They will provide clinics for a variety of outdoor activities such as kayaking, mountain biking, rock climbing, wilderness survival techniques, orienteering, backpacking, and other adventure sports.
Required:
4. To report company performance, Suzie plans to prepare the four primary financial statements. Explain the type of information provided by each statement.
Explanation / Answer
Financial statements are public reports published by the company for the purpose of providing information to external users. We have the following primary financial statements: 1)Income statement 2) Statement of Stockholder's equity 3) Balance sheet and 4) Statement of Cash flows The income statement is a financial statement that reports Company's revenues and expenses over an interval of time. It shows whether the Company was able to generate enough revenue to cover the expenses of running the business and if the revenues exceeds expenses, then the company reports net income. If expenses exceed revenues then the company reports net loss. The statement of stockholder's equity is a financial statement that summarizes the changes in the stockholder's equity over an interval of time. The reporting period coincides with the time period covered by the income statement. Stockholder's equity has two primary components- Common stock and retained earnings. Common stock represents the amount invested by stockholders when they purchase shares of stock. It is an external source of stockholder's equity. Retained earnings represent the cumulative amount of net income earned over the life of the company that has not been distributed to stockholders as dividends. Thus, both common stock and retained earnings make up total stockholders equity. The balance sheet is a financial statement that presents the financial position of a Company at a particular date. The financial position of the Company is summarized by the accounting equation: Assets = Liabilities + Stockholder's equity Assets are the resources owned by the Company, while liabilities are amounts owed to creditors. This means that stockholder's have equity to the extent that assets exceed liabilities. The statement of cash flows is a financial statement that measures activities involving cash receipts and cash payments over an interval of time. The three forms of business activities are 1) Operating activities 2) Investing activities and 3) Financing activities Operating activities includes cash receipts and cash payments for transactions involving revenues and expenses. Investing activities generally includes cash transactions for the purchase and sale of investments and productive long-term assets. Long-term assets are resources owned by a company that are thought to provide benefits for more than one year. Financing activities includes cash transactions with lenders , such as borrowing money and repaying debt,and with stockholders, such as issuing stock and paying dividends