p income statement for the year ended December 31, Year 1, concluding with earnings per share. In computing earnings
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.
Instructions
- Journalize the selected transactions.
- After all of the transactions for the year ended December 31, Year 1, had been
posted [including the transactions recorded in part (1) and alladjusting entries ], the data that follows were taken from the records of Equinox Products Inc.
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- Prepare a multiple-step income statement for the year ended December 31, Year 1, concluding with earnings per share. In computing earnings per share, assume that the average number of common shares outstanding was 100,000 and preferred dividends were $100,000. Round earnings per share to the nearest cent.
- Prepare a
retained earnings statement for the year ended December 31, Year 1. - Prepare a
balance sheet in report form as of December 31, Year 1.
Selected transactions completed by Equinox Products Inc. during the fiscal year ended December 31, Year 1, were as follows:
a. Issued 15,000 shares of $20 par common stock at $30, receiving cash.
b. Issued 4,000 shares of $80 par preferred 5% stock at $100, receiving cash.
c. Issued $500,000 of 10-year, 5% bonds at 104, with interest payable semiannually.
d. Declared a quarterly dividend of $0.50 per share on common stock and $1.00 per share on
e. Paid the cash dividends declared in (d).
f. Purchased 7,500 shares of Solstice Corp. at $40 per share plus a $150 brokerage commission. The investment is classified as an available-forsale investment.
g. Purchased 8,000 shares of
h. Purchased 40,000 shares of Pinkberry Co. stock directly from the founders for $24 per share. Pinkberry has 125,000 shares issued and outstanding. Equinox Products Inc. treated the investment as an equity method investment.
i. Declared a $1.00 quarterly cash dividend per share on preferred stock. On the date of record, 20,000 shares of preferred stock had been issued.
j. Paid the cash dividends to the preferred stockholders.
k. Received $27,500 dividend from Pinkberry Co. investment in (h).
l. Purchased $90,000 of Dream Inc. 10-year, 5% bonds, directly from the issuing company, at their face amount plus accrued interest of $375. The bonds are classified as a held-to-maturity long-term investment.
m. Sold, at $38 per share, 2,600 shares of treasury common stock purchased in (g).
n. Received a dividend of $0.60 per share from the Solstice Corp. investment in (f).
o. Sold 1,000 shares of Solstice Corp. at $45, including commission.
p. Recorded the payment of semiannual interest on the bonds issued in (c) and the amortization of the premium for six months. The amortization is determined using the straight-line method. q. Accrued interest for three months on the Dream Inc. bonds purchased in (l).
q. Accrued interest for three months on the Dream Inc. bonds purchased in (l).
r. Pinkberry Co. recorded total earnings of $240,000. Equinox Products recorded equity earnings for its share of Pinkberry Co. net income.
s. The fair value for Solstice Corp. stock was $39.02 per share on December 31, Year 1. The investment is adjusted to fair value, using a valuation allowance account. Assume that Valuation Allowance for Available-for-Sale Investments had a beginning balance of zero.
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