he balance sheet of Matnog Company as of December 31, 2022 is as follows: Assets Liabilities and Stockholders' Equity Cash P 175,000 Current liabilities P 250,000 Accounts receivable 250,000 Mortgage payable 450,000 Inventories 725,000 Common stock 200,000 Property, plant and Additional paid-in capital 400,000 equipment 950,000 Retained earnings 800,000 Total Assets 2,100,000 Total Liabilities and SHE 2,100,000 On December 31, 2022 the Sorsogon Inc. bought all of the outstanding stock of Matnog Company for P1,800,000 cash. On the date of purchase, the fair market value of Matnog’s inventories was P675,000, while the fair value of Matnog’s property, plant and equipment was P1,100,000. The fair values of all other assets and liabilities of Matnog Company were equal to their book values. 1. The consolidated balance sheet of Sorsogon and Matnog, after the acquisition of San Jacinto should reflect gain on acquisition in the amount of P300,000 P400,000 P500,000 Zero 2. Using the same information, the amount of gain on acquisition or goodwill recorded in the books of Sorsogon amounted to: P300,000 P400,000 P500,000 Zero
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
The
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Assets |
|
|
|
|
Liabilities and |
||
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Cash |
P |
|
175,000 |
|
Current liabilities |
P |
250,000 |
|
|
|
|
250,000 |
|
Mortgage payable |
|
450,000 |
|
Inventories |
|
|
725,000 |
|
Common stock |
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200,000 |
|
Property, plant and |
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|
|
|
Additional paid-in capital |
|
400,000 |
|
equipment |
|
|
950,000 |
|
|
|
800,000 |
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Total Assets |
|
|
2,100,000 |
|
Total Liabilities and SHE |
|
2,100,000 |
On December 31, 2022 the Sorsogon Inc. bought all of the outstanding stock of Matnog Company for P1,800,000 cash. On the date of purchase, the fair market value of Matnog’s inventories was P675,000, while the fair value of Matnog’s property, plant and equipment was P1,100,000. The fair values of all other assets and liabilities of Matnog Company were equal to their book values.
1. The consolidated balance sheet of Sorsogon and Matnog, after the acquisition of San Jacinto should reflect gain on acquisition in the amount of
- P300,000
- P400,000
- P500,000
- Zero
2. Using the same information, the amount of gain on acquisition or
- P300,000
- P400,000
- P500,000
- Zero
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