ntries for Selected Corporate Transactions Morrow Enterprises Inc. manufactures bathroom fixtures. The stockholders' equity accounts of Morrow Enterprises Inc., with balances on January 1, 20Y5, are as follows: Common Stock, $10 stated value (800,000 shares authorized, 540,000 shares issued) $5,400,000 Paid-In Capital in Excess of Stated Value-Common Stock 1,050,000 Retained Earnings 12,260,000 Treasury Stock (54,000 shares, at cost) 756,000 The following selected transactions occurred during the year: Jan. 22. Paid cash dividends of $0.14 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $68,040. Apr. 10. Issued 105,000 shares of common stock for $1,890,000. June 6. Sold all of the treasury stock for $918,000. July 5. Declared a 4% stock dividend on common stock, to be capitalized at the market price of the stock, which is $20 per share. Aug. 15. Issued the certificates for the dividend declared on July 5. Nov. 23. Purchased 34,000 shares of treasury stock for $646,000. Dec. 28. Declared a $0.17-per-share dividend on common stock. 31. Closed the credit balance of the income summary account, $12,750,000. 31. Closed the two dividends accounts to Retained Earnings. Required: 1. The January 1 balances have been entered in T accounts for the stockholders' equity accounts. Record the above transactions in the T accounts and provide the December 31 balance where appropriate. Common Stock Jan. 1 Bal. 5,400,000 Dec. 31 Bal. Paid-In Capital in Excess of Stated Value-Common Stock Jan. 1 Bal. 1,050,000 Dec. 31 Bal. Retained Earnings Jan. 1 Bal. 12,260,000 Dec. 31 Bal. Treasury Stock Jan. 1 Bal. 756,000 Dec. 31 Bal. Paid-In Capital from Sale of Treasury Stock
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.
Entries for Selected Corporate Transactions
Morrow Enterprises Inc. manufactures bathroom fixtures. The
| Common Stock, $10 stated value (800,000 shares authorized, 540,000 shares issued) | $5,400,000 |
| Paid-In Capital in Excess of Stated Value-Common Stock | 1,050,000 |
| 12,260,000 | |
| 756,000 |
The following selected transactions occurred during the year:
| Jan. 22. | Paid cash dividends of $0.14 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $68,040. |
| Apr. 10. | Issued 105,000 shares of common stock for $1,890,000. |
| June 6. | Sold all of the treasury stock for $918,000. |
| July 5. | Declared a 4% stock dividend on common stock, to be capitalized at the market price of the stock, which is $20 per share. |
| Aug. 15. | Issued the certificates for the dividend declared on July 5. |
| Nov. 23. | Purchased 34,000 shares of treasury stock for $646,000. |
| Dec. 28. | Declared a $0.17-per-share dividend on common stock. |
| 31. | Closed the credit balance of the income summary account, $12,750,000. |
| 31. | Closed the two dividends accounts to Retained Earnings. |
Required:
1. The January 1 balances have been entered in T accounts for the stockholders' equity accounts. Record the above transactions in the T accounts and provide the December 31 balance where appropriate.
| Common Stock | |||
|---|---|---|---|
| Jan. 1 Bal. | 5,400,000 | ||
| Dec. 31 Bal. |
| Paid-In Capital in Excess of Stated Value-Common Stock | |||
|---|---|---|---|
| Jan. 1 Bal. | 1,050,000 | ||
| Dec. 31 Bal. |
| Retained Earnings | |||
|---|---|---|---|
| Jan. 1 Bal. | 12,260,000 | ||
| Dec. 31 Bal. |
| Treasury Stock | |||
|---|---|---|---|
| Jan. 1 Bal. | 756,000 | ||
| Dec. 31 Bal. |
| Paid-In Capital from Sale of Treasury Stock | |||
|---|---|---|---|
| Stock Dividends Distributable | |||
|---|---|---|---|
| Stock Dividends | |||
|---|---|---|---|
| Cash Dividends | |||
|---|---|---|---|
2.
Jan. 22. Paid cash dividends of $0.14 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $68,040.
| Date | Account | Debit | Credit |
|---|---|---|---|
| Jan. 22 | |||
Apr. 10. Issued 105,000 shares of common stock for $1,890,000.
| Date | Account | Debit | Credit |
|---|---|---|---|
| Apr. 10 | |||
June 6. Sold all of the treasury stock for $918,000.
| Date | Account | Debit | Credit |
|---|---|---|---|
| June 6 | |||
July 5. Declared a 4% stock dividend on common stock, to be capitalized at the market price of the stock, which is $20 per share.
| Date | Account | Debit | Credit |
|---|---|---|---|
| July 5 | |||
Aug. 15. Issued the certificates for the dividend declared on July 5.
| Date | Account | Debit | Credit |
|---|---|---|---|
| Aug. 15 | |||
Nov. 23. Purchased 34,000 shares of treasury stock for $646,000.
| Date | Account | Debit | Credit |
|---|---|---|---|
| Nov. 23 | |||
Dec. 28. Declared a $0.17-per-share dividend on common stock.
| Date | Account | Debit | Credit |
|---|---|---|---|
| Dec. 28 | |||
Dec. 31. Closed the credit balance of the income summary account, $12,750,000.
| Date | Account | Debit | Credit |
|---|---|---|---|
| Dec. 31 | |||
Dec. 31. Closed the two dividends accounts to Retained Earnings.
| Date | Account | Debit | Credit |
|---|---|---|---|
| Dec. 31 | |||
3. Prepare a retained earnings statement for the year ended December 31, 20Y5. Assume that Morrow Enterprises Inc. had net income for the year ended December 31, 20Y5, of $12,750,000.
| Morrow Enterprises Inc. Retained Earnings Statement For the Year Ended December 31, 20Y5 |
||
|---|---|---|
| Dividends: | ||
| $ |
4. Prepare the Stockholders' Equity section of the December 31, 20Y5,
| Morrow Enterprises Inc. Stockholders' Equity As of December 31, 20Y5 |
|||
|---|---|---|---|
| Paid-In-Capital: | |||
| Total Paid-In Capital | |||
| Total | |||
| Total Stockholders' Equity | $ |
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