Brief Exercise 08-4 (Algo) Effect of issuing common stock and par preferred stock on the horizontal statements model LO 08-4 Mel's Organics was organized on June 5, Year 1. It was authorized to issue 100,500 shares of $5 par common stock and 25,500 shares of 6 percent cumulative class A preferred stock. The class A stock had a stated value of $40 per share. The following stock events pertain to Mel's Organics: 1. Issued 30,500 shares of common stock for $8 per share. 2. Issued 10,500 shares of the class A preferred stock for $50 per share. Required: Use a horizontal financial statements model to show how each event affects the balance sheet, income statement, and statement of cash flows. More specifically, record the amounts of the events into the model. Also, in the Statement of Cash Flows column, classify the cash flows as operating activities (OA), investing activities (IA), or financing activities (FA). Note: Enter any decreases to account balances and cash outflows with a minus sign. Leave cells blank if no input is needed. Event Number Assets Cash 1 2 Total NC Net change in cash = = = Balance Sheet Preferred Stock Stockholders' Equity Common Stock + + Paid-in Capital in Excess of Par (or Stated) Value Revenue Income Statement Expenses Net Income Statement of Cash Flows NC
Brief Exercise 08-4 (Algo) Effect of issuing common stock and par preferred stock on the horizontal statements model LO 08-4 Mel's Organics was organized on June 5, Year 1. It was authorized to issue 100,500 shares of $5 par common stock and 25,500 shares of 6 percent cumulative class A preferred stock. The class A stock had a stated value of $40 per share. The following stock events pertain to Mel's Organics: 1. Issued 30,500 shares of common stock for $8 per share. 2. Issued 10,500 shares of the class A preferred stock for $50 per share. Required: Use a horizontal financial statements model to show how each event affects the balance sheet, income statement, and statement of cash flows. More specifically, record the amounts of the events into the model. Also, in the Statement of Cash Flows column, classify the cash flows as operating activities (OA), investing activities (IA), or financing activities (FA). Note: Enter any decreases to account balances and cash outflows with a minus sign. Leave cells blank if no input is needed. Event Number Assets Cash 1 2 Total NC Net change in cash = = = Balance Sheet Preferred Stock Stockholders' Equity Common Stock + + Paid-in Capital in Excess of Par (or Stated) Value Revenue Income Statement Expenses Net Income Statement of Cash Flows NC
Chapter1: Financial Statements And Business Decisions
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**Brief Exercise 08-4 (Algo): Effect of Issuing Common Stock and Preferred Stock on the Horizontal Statements Model LO 08-4**
Mel’s Organics was organized on June 5, Year 1. It was authorized to issue 100,500 shares of $5 par common stock and 25,500 shares of 6 percent cumulative class A preferred stock, with a stated value of $40 per share. Below are the stock issuance events relevant to Mel’s Organics:
1. Issued 30,500 shares of common stock for $8 per share.
2. Issued 10,500 shares of class A preferred stock for $50 per share.
**Required Task:**
Utilize a horizontal financial statements model to demonstrate how each event impacts the balance sheet, income statement, and statement of cash flows. Specifically, record the amounts for the events in the model. In the Statement of Cash Flows column, categorize the cash flows as operating activities (OA), investing activities (IA), or financing activities (FA).
**Note:** Enter any decreases to account balances and cash outflows with a minus sign. Leave cells blank if no input is needed.
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**Explanation of Chart/Diagram:**
The chart provides a structured approach to assess the impact of each stock issuance transaction on Mel’s Organics' financial statements.
- **Event Number:** Identifies each transaction event (1 or 2).
- **Balance Sheet:**
- **Assets (Cash):** Reflects changes in cash based on stock issuance.
- **Stockholders’ Equity:**
- **Preferred Stock:** Records issuance of preferred stock.
- **Common Stock:** Records issuance of common stock.
- **Paid-in Capital in Excess of Par (or Stated) Value:** Accounts for amounts received over the par value.
- **Income Statement:**
- **Revenue, Expenses, Net Income:** These sections remain unaffected by stock issuances and are left blank.
- **Statement of Cash Flows:**
- Clarifies the net change in cash (NC) as a result of financing activities related to stock issuance.
Each row corresponds to a stock transaction and effectively displays the related cash flow and equity adjustments in the context of the company’s broader financial model.
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