Mans Company is about to purchase the net assets of Eagle Incorporated, which has the following balance sheet: Assets Accounts receivable $ 60,000 Inventory 100,000 Equipment $ 90,000 Accumulated depreciation (50,000) 40,000 Land and buildings $300,000 Accumulated depreciation (100,000) 200,000 Goodwill 60,000 Total assets $460,000 Liabilities and Stockholders' Equity Bonds payable $ 80,000 Common stock, $10 par 200,000 Paid-in capital in excess of par 100,000 Retained earnings 80,000 Total liabilities and equity $460,000 Mans has secured the following fair values of Eagle's accounts: Inventory $130,000 Equipment 60,000 Land and buildings 260,000 Bonds payable 60,000 Acquisition costs were $20,000. Required: Record the entry for the purchase of the net assets of Eagle by Mans at the following cash prices: a. $480,000 Sorry – No check numbers available.
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.
Mans Company is about to purchase the net assets of Eagle Incorporated, which has the following
|
Assets |
|
|
|
|
|
$ 60,000 |
|
Inventory |
|
100,000 |
|
Equipment |
$ 90,000 |
|
|
|
(50,000) |
40,000 |
|
|
|
|
|
Land and buildings |
$300,000 |
|
|
Accumulated depreciation |
(100,000) |
200,000 |
|
|
|
60,000 |
|
Total assets |
|
$460,000 |
|
|
|
|
|
Liabilities and |
|
|
|
Bonds payable |
|
$ 80,000 |
|
Common stock, $10 par |
|
200,000 |
|
Paid-in capital in excess of par |
|
100,000 |
|
|
|
80,000 |
|
Total liabilities and equity |
|
$460,000 |
Mans has secured the following fair values of Eagle's accounts:
|
Inventory |
$130,000 |
|
Equipment |
60,000 |
|
Land and buildings |
260,000 |
|
Bonds payable |
60,000 |
Acquisition costs were $20,000.
Required:
Record the entry for the purchase of the net assets of Eagle by Mans at the following cash prices:
|
a. |
$480,000 Sorry – No check numbers available. |
The process of recording business transactions in the books of accounts for the first time is referred to as journal entry
For the purpose of recording the journal entry the double-entry system becomes the base.
While recording the journal entry the transactions are recorded as and when occurs hence it is also known as Day Book.
Journal entry types:
- Transfer entries
- Closing entries
- Adjusting entries
- Compound entries
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