Hi, Else here.
We just finished the video on Cooper company.
We're going to do our last video, number four,
and it's going to be on XYZ Company-- the most complex
that I have had yet.
So let's start.
Remember, you need to download the question
so you can follow along.
In this case, we know that this is the current year
and this is the prior year.
We have land, we have equipment, accumulated depreciation,
and common shares.
We have additional information, which tells us immediately
that we need to do a T account proof.
What is it?
Land was purchased during the year.
Land was sold-- soon as we know that land was sold,
we're going to have to do something about it--
during the year for cash.
Its original cost was $30,000.
Equipment was purchased in exchange for common shares.
In addition-- oops, sorry about that,
that should have been addition-- but in addition to the shares
issued an item--
item, thank you-- in addition to shares issued in item number 3,
other shares were sold for cash.
So I know this information requires
me to do a T account proof.
The very first thing I'm going to do, of course,
is I'm going to create the blank T accounts.
I'm going to start with the T accounts for land.
I'm going to do one at a time, so I'm going to do land
first and then the equipment.
Now land doesn't have any accumulated appreciation,
because land does not depreciate.
Why not?
Because it's going to have future economic
benefit forever in the future.
I'm going to put the opening balance first,
which is $80,000.
This is all from the statement of financial position, also
called the balance sheet, and then I'm going to put 120,000.
This is directly from the balance sheet.
I also need entry, so I'm going to do a debit to cash.
I know that there is going to be a credit to land.
There will be no debit to accumulated depreciation,
because it doesn't exist.
And I need to see if there is a gain or loss on sale--
don't know that information yet.
I've got everything here, I've got my blanks,
and I need to move forward with looking at the income
statement.
I go through the income statement.
I see depreciation expense has nothing to do with land
and I see a loss on the sale of land.
So now I know that there's a debit to a loss on sale.
And that amount is $2,500.
Where do I go now?
I go to the additional information,
so let's look at the additional information.
Land was purchased during the year.
I can't do anything about that right now.
Land was sold during the year for cash.
Its original cost was $30,000.
So I can immediately fill in the $30,000 right here.
Now I have everything that I need in order
to fill in my blanks.
I know that a credit to land would result in a credit
to land right here of $30,000.
I know that this entry right here, I can solve for my cash.
My cash must've been 27,500.
I now can solve for this unknown on the debit side of land.
The unknown of course would be $70,000.
What's my next step?
Always I then categorize into the correct category
for the cash statement.
I know that this amount was a purchase of land.
Now purchases go under investing,
and a purchase would cause an outflow negative.
This is historical cost and I do not use it anywhere.
Cash would have to be used, because anything cash has to go
on the cash flow statement.
This was the sale of land.
Investing activities and it's an inflow plus.
Loss on the sale of land would always
go in, because it's on the income statement.
Does this have anything to do with cash?
No.
This is the cash.
This has nothing to do with cash.
In that case, I have to remove it from the income statement.
It's right now a debit, which is a reduction in net income
or profit, so I have to add it back to get rid of it.
Operating activities and that is a plus.
This is historical information and I won't use it.
What do we do next?
We look and we say, well, I've got some equipment.
Equipment was purchased in exchange for common shares.
So I need the common share information
and I also need the equipment.
So I'm going to start with my blank T accounts of course.
I've got an equipment account.
My accumulated depreciation.
I also need common shares.
I do not need a sale entry, because nothing
was sold for equipment.
What's the first thing I do?
I'm going to fill in everything I
have from my statement of financial position,
also called the balance sheet.
So I have the information here for equipment,
and accumulated depreciation, and common shares.
So I'm going to fill that in.
Equipment, 130,000, at the beginning of the year, 190,000,
at the end of the year, accumulated depreciation
starts off with 63,500, ends with 70,000, common shares,
starts with 100,000, and ends with 200,000.
Finished with all the information
on the statement of financial position, also
called balance sheet.
I move onto the income statement.
Do I have any information on the income statement?
Yes.
I have depreciation expense, $6,500.
Anything else?
No.
Move on.
Additional information.
Equipment was purchased in exchange for common shares.
I now know the total amount of equipment that was purchased
was all in exchange for common shares.
Calculate the total amount purchased--
60,000.
Was there any sales?
None.
Was there anything else in accumulated depreciation?
Nothing.
Was there anything else in common shares?
Nothing.
But this purchase of equipment was done
in exchange for common shares.
So in that case, there must have been an entry.
What was the entry?
The entry would have been a debit to equipment
of $60,000 and a credit to common shares of $60,000,
but that has nothing to do with cash.
So I now know that 60,000 here had nothing to do with cash.
I can solve for the other amount that was impacting
common shares, 40,000.
Have I got everything on the board?
I have everything on the board to make my determination what
shows up on the cash flow.
On the cash flow, the $60,000 will not show up.
Why not?
Because it had nothing to do with cash.
So that means this 60,000 will not show up either.
Instead, it's going to be a note to the cash flow statement,
but it's not going to show up in the body of my cash flow.
What will show up on the body of my cash flow?
Depreciation expense, operating plus, why?
Because accumulated depreciation has nothing to do with cash.
It has been deducted from net income or profitability,
so I have to put it back to remove its impact,
because I'm trying in the indirect method
to convert my accrual number for net income, also called profit,
over to a cash number.
Let's go down to common shares.
What would show up?
Only the 40,000.
That would be an issue of shares and that would be an inflow,
because we're receiving cash.
We gave away shares, we received cash.
So that would be financing plus.
Nothing else would show up on the statement
of cash flows for either the equipment,
accumulated depreciation, or the common shares.
That's it for this series of videos.
Hopefully this has really clarified your thinking
with regards to T account proofs.
Thank you very much for watching my videos.