On December 1 of the current year, the following accounts and their balances appear in the ledger of Latte Corp., a coffee processor: Preferred 2% Stock, $50 par (250,000 shares authorized, 80,000 shares issued) $4,000,000 Paid-In Capital in Excess of Par—Preferred Stock 560,000 Common Stock, $35 par (1,000,000 shares authorized, 400,000 shares issued) 14,000,000 Paid-In Capital in Excess of Par—Common Stock 1,200,000 Retained Earnings 180,000,000 At the annual stockholders’ meeting on March 31, the board of directors presented a plan for modernizing and expanding plant operations at a cost of approximately $11,000,000. The plan provided (a) that a building, valued at $3,375,000, and the land on which it is located, valued at $1,500,000, be acquired in accordance with preliminary negotiations by the issuance of 125,000 shares of common stock, (b) that 40,000 shares of the unissued preferred stock be issued through an underwriter, and (c) that the corporation borrow $4,000,000. The plan was approved by the stockholders and accomplished by the following transactions: May 11 Issued 125,000 shares of common stock in exchange for land and a building, according to the plan. 20 Issued 40,000 shares of preferred stock, receiving $52 per share in cash. 31 Borrowed $4,000,000 from Laurel National, giving a 5% mortgage note. Journalize the entries to record the May transactions. Refer to the Chart of Accounts for exact wording of account titles. CHART OF ACCOUNTSLatte Corp.General Ledger ASSETS 110 Cash 120 Accounts Receivable 131 Notes Receivable 132 Interest Receivable 141 Inventory 145 Office Supplies 151 Prepaid Insurance 181 Land 191 Building 192 Accumulated Depreciation-Buildings LIABILITIES 210 Accounts Payable 221 Notes Payable 226 Interest Payable 231 Cash Dividends Payable 236 Stock Dividends Distributable 241 Salaries Payable 261 Mortgage Note Payable EQUITY 311 Common Stock 312 Paid-In Capital in Excess of Par-Common Stock 315 Treasury Stock 321 Preferred Stock 322 Paid-In Capital in Excess of Par-Preferred Stock 331 Paid-In Capital from Sale of Treasury Stock 340 Retained Earnings 351 Cash Dividends 352 Stock Dividends 390 Income Summary REVENUE 410 Sales 610 Interest Revenue EXPENSES 510 Cost of Goods Sold 515 Credit Card Expense 520 Salaries Expense 531 Advertising Expense 532 Delivery Expense 533 Selling Expenses 534 Rent Expense 535 Insurance Expense 536 Office Supplies Expense 537 Organizational Expenses 561 Depreciation Expense-Building 590 Miscellaneous Expense 710 Interest Expense Journalize the entries to record the May transactions. Refer to the Chart of Accounts for exact wording of account titles.
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.
| Preferred 2% Stock, $50 par (250,000 shares authorized, 80,000 shares issued) | $4,000,000 |
| Paid-In Capital in Excess of Par—Preferred Stock | 560,000 |
| Common Stock, $35 par (1,000,000 shares authorized, 400,000 shares issued) | 14,000,000 |
| Paid-In Capital in Excess of Par—Common Stock | 1,200,000 |
| 180,000,000 |
| May 11 | Issued 125,000 shares of common stock in exchange for land and a building, according to the plan. |
| 20 | Issued 40,000 shares of preferred stock, receiving $52 per share in cash. |
| 31 | Borrowed $4,000,000 from Laurel National, giving a 5% mortgage note. |
| ASSETS | |
| 110 | Cash |
| 120 | |
| 131 | Notes Receivable |
| 132 | Interest Receivable |
| 141 | Inventory |
| 145 | Office Supplies |
| 151 | Prepaid Insurance |
| 181 | Land |
| 191 | Building |
| 192 |
| LIABILITIES | |
| 210 | Accounts Payable |
| 221 | Notes Payable |
| 226 | Interest Payable |
| 231 | Cash Dividends Payable |
| 236 | Stock Dividends Distributable |
| 241 | Salaries Payable |
| 261 | Mortgage Note Payable |
| EQUITY | |
| 311 | Common Stock |
| 312 | Paid-In Capital in Excess of Par-Common Stock |
| 315 | |
| 321 | Preferred Stock |
| 322 | Paid-In Capital in Excess of Par-Preferred Stock |
| 331 | Paid-In Capital from Sale of Treasury Stock |
| 340 | Retained Earnings |
| 351 | Cash Dividends |
| 352 | Stock Dividends |
| 390 | Income Summary |
| REVENUE | |
| 410 | Sales |
| 610 | Interest Revenue |
| EXPENSES | |
| 510 | Cost of Goods Sold |
| 515 | Credit Card Expense |
| 520 | Salaries Expense |
| 531 | Advertising Expense |
| 532 | Delivery Expense |
| 533 | Selling Expenses |
| 534 | Rent Expense |
| 535 | Insurance Expense |
| 536 | Office Supplies Expense |
| 537 | Organizational Expenses |
| 561 | Depreciation Expense-Building |
| 590 | Miscellaneous Expense |
| 710 | Interest Expense |
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