Selected transactions completed by Equinox Products Inc. during the fiscal year ended December 31, 2016, were as follows: Record on journal page 10: Jan. 3 Issued 15,000 shares of $20 par common stock at $30, receiving cash. Feb. 15 Issued 4,000 shares of $80 par preferred 5% stock at $100, receiving cash. May 1 Issued $500,000 of 10-year, 5% bonds at 104, with interest payable semiannually. 16 Declared a dividend of $0.50 per share on common stock and $1.00 per share on preferred stock. On the date of record, 100,000 shares of common stock were outstanding, no treasury shares were held, and 20,000 shares of preferred stock were outstanding. Journalize this transaction as a single entry. 26 Paid the cash dividends declared on May 16. Jun. 1 Purchased 7,500 shares of Solstice Corp. at $40 per share, plus a $150 brokerage commission. The investment is classified as an available-for-sale investment. 8 Purchased 8,000 shares of treasury common stock at $33 per share. 22 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. 30 Declared a $1.00 cash dividend per share on preferred stock. On the date of record, 20,000 shares of preferred stock were outstanding. Jul. 11 Paid the cash dividends declared on Jun. 30 to the preferred stockholders. Aug. 27 Received $27,500 dividend from Pinkberry Co. investment of Jun. 22. Record on journal page 11: Oct. 1 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. 7 Sold, at $38 per share, 2,600 shares of treasury common stock purchased on Jun. 8. 14 Received a dividend of $0.60 per share from the Solstice Corp. investment on Jun. 1. 29 Sold 1,000 shares of Solstice Corp. at $45, including commission. 31 Recorded the payment of semiannual interest on the bonds issued on May 1 and the amortization of the premium for six months. The amortization is determined using the straight-line method. Dec. 31 Accrued interest for three months on the Dream Inc. bonds purchased on Oct. 1. 31 Pinkberry Co. recorded total earnings of $240,000. Equinox Products recorded equity earnings for its share of Pinkberry Co. net income. 31 The fair value for Solstice Corp. stock was $39.02 per share on December 31, 2016. The investment is adjusted to fair value, using a valuation allowance account. Assume Valuation Allowance for Available-for-Sale Investments had a beginning balance of zero. Required: 1. Journalize the selected transactions. Refer to the Chart of Accounts for exact wording of account titles. CHART OF ACCOUNTS Equinox Products Inc.General Ledger ASSETS 110 Cash 121 Accounts Receivable 122 Allowance for Doubtful Accounts 131 Merchandise Inventory 132 Interest Receivable 133 Prepaid Expenses 141 Investments-Solstice Corp. 142 Investment in Pinkberry Co. 143 Investments-Dream Inc. Bonds 144 Valuation Allowance for Available-for-Sale Investments 181 Store Buildings and Equipment 182 Accumulated Depreciation-Store Buildings and Equipment 183 Office Buildings and Equipment 184 Accumulated Depreciation-Office Buildings and Equipment 191 Goodwill LIABILITIES 211 Accounts Payable 221 Income Tax Payable 225 Cash Dividends Payable 251 Bonds Payable 252 Discount on Bonds Payable 253 Premium on Bonds Payable EQUITY 311 Preferred Stock 312 Paid-in Capital in Excess of Par-Preferred Stock 321 Common Stock 322 Paid-in Capital in Excess of Par-Common Stock 331 Retained Earnings 341 Cash Dividends 351 Treasury Stock 352 Paid-in Capital from Sale of Treasury Stock 361 Unrealized Gain (Loss) on Available-for-Sale Investments REVENUE 410 Sales 611 Dividend Revenue 621 Interest Revenue 631 Income of Pinkberry Co. 641 Gain on Sale of Investments EXPENSES 511 Cost of Merchandise Sold 512 Bad Debt Expense 520 Sales Salaries Expense 521 Sales Commissions 522 Office Salaries Expense 531 Advertising Expense 532 Delivery Expense 537 Store Supplies Expense 538 Office Supplies Expense 539 Office Rent Expense 541 Income Tax Expense 551 Depreciation Expense-Store Equipment 552 Depreciation Expense-Office Equipment 591 Miscellaneous Selling Expense 592 Miscellaneous Administrative Expense 710 Interest Expense 731 Loss on Sale of Investments
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.
Jan. | 3 | Issued 15,000 shares of $20 par common stock at $30, receiving cash. |
Feb. | 15 | Issued 4,000 shares of $80 par preferred 5% stock at $100, receiving cash. |
May | 1 | Issued $500,000 of 10-year, 5% bonds at 104, with interest payable semiannually. |
16 | Declared a dividend of $0.50 per share on common stock and $1.00 per share on |
|
26 | Paid the cash dividends declared on May 16. | |
Jun. | 1 | Purchased 7,500 shares of Solstice Corp. at $40 per share, plus a $150 brokerage commission. The investment is classified as an available-for-sale investment. |
8 | Purchased 8,000 shares of treasury common stock at $33 per share. | |
22 | 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. | |
30 | Declared a $1.00 cash dividend per share on preferred stock. On the date of record, 20,000 shares of preferred stock were outstanding. | |
Jul. | 11 | Paid the cash dividends declared on Jun. 30 to the preferred stockholders. |
Aug. | 27 | Received $27,500 dividend from Pinkberry Co. investment of Jun. 22. |
Oct. | 1 | 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. |
7 | Sold, at $38 per share, 2,600 shares of treasury common stock purchased on Jun. 8. | |
14 | Received a dividend of $0.60 per share from the Solstice Corp. investment on Jun. 1. | |
29 | Sold 1,000 shares of Solstice Corp. at $45, including commission. | |
31 | Recorded the payment of semiannual interest on the bonds issued on May 1 and the amortization of the premium for six months. The amortization is determined using the straight-line method. | |
Dec. | 31 | Accrued interest for three months on the Dream Inc. bonds purchased on Oct. 1. |
31 | Pinkberry Co. recorded total earnings of $240,000. Equinox Products recorded equity earnings for its share of Pinkberry Co. net income. | |
31 | The fair value for Solstice Corp. stock was $39.02 per share on December 31, 2016. The investment is adjusted to fair value, using a valuation allowance account. Assume Valuation Allowance for Available-for-Sale Investments had a beginning balance of zero. |
Required: | |
1. | Journalize the selected transactions. Refer to the Chart of Accounts for exact wording of account titles. |
CHART OF ACCOUNTS Equinox Products Inc.General Ledger
ASSETS | |
110 | Cash |
121 | |
122 | Allowance for Doubtful Accounts |
131 | Merchandise Inventory |
132 | Interest Receivable |
133 | Prepaid Expenses |
141 | Investments-Solstice Corp. |
142 | Investment in Pinkberry Co. |
143 | Investments-Dream Inc. Bonds |
144 | Valuation Allowance for Available-for-Sale Investments |
181 | Store Buildings and Equipment |
182 | |
183 | Office Buildings and Equipment |
184 | Accumulated Depreciation-Office Buildings and Equipment |
191 |
LIABILITIES | |
211 | Accounts Payable |
221 | Income Tax Payable |
225 | Cash Dividends Payable |
251 | Bonds Payable |
252 | Discount on Bonds Payable |
253 | Premium on Bonds Payable |
EQUITY | |
311 | Preferred Stock |
312 | Paid-in Capital in Excess of Par-Preferred Stock |
321 | Common Stock |
322 | Paid-in Capital in Excess of Par-Common Stock |
331 | |
341 | Cash Dividends |
351 | |
352 | Paid-in Capital from Sale of Treasury Stock |
361 | Unrealized Gain (Loss) on Available-for-Sale Investments |
REVENUE | |
410 | Sales |
611 | Dividend Revenue |
621 | Interest Revenue |
631 | Income of Pinkberry Co. |
641 | Gain on Sale of Investments |
EXPENSES | |
511 | Cost of Merchandise Sold |
512 | |
520 | Sales Salaries Expense |
521 | Sales Commissions |
522 | Office Salaries Expense |
531 | Advertising Expense |
532 | Delivery Expense |
537 | Store Supplies Expense |
538 | Office Supplies Expense |
539 | Office Rent Expense |
541 | Income Tax Expense |
551 | Depreciation Expense-Store Equipment |
552 | Depreciation Expense-Office Equipment |
591 | Miscellaneous Selling Expense |
592 | Miscellaneous Administrative Expense |
710 | Interest Expense |
731 | Loss on Sale of Investments |
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