The stockholders’ equity of Skowski Company on June 30, 20x7, was as follows: Stockholders’ equity transactions in the next fiscal year were as follows: The board of directors declared a 2-for-1 stock split. The board of directors obtained authorization to issue 50,000 shares of $100 par value, 6 percent noncumulative preferred stock, callable at $104. Issued 12,000 shares of common stock for a building appraised at $96,000. Purchased 8,000 shares of the company’s common stock for $64,000. Issued 20,000 shares of preferred stock for $100 per share. Sold 5,000 shares of treasury stock for $35,000. Declared cash dividends of $6 per share on preferred stock and $.20 per share on common stock. Declared a 10 percent stock dividend on common stock to be distributed after the end of the fiscal year. The market value was $10 per share. Closed net income for the year, $340,000. Closed the Dividends and Stock Dividends accounts to Retained Earnings. Required: Record the stockholders’ equity components of the preceding transactions in T accounts. Indicate when there is no entry. Prepare the stockholders’ equity section of the company’s balance sheet on June 30, 20x8. Compute the book values per share of common stock on June 30, 20x7 and 20x8, and of preferred stock on June 30, 20x8, using the end-of-year shares outstanding.
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.
The
Stockholders’ equity transactions in the next fiscal year were as follows:
- The board of directors declared a 2-for-1 stock split.
- The board of directors obtained authorization to issue 50,000 shares of $100 par value, 6 percent noncumulative preferred stock, callable at $104.
- Issued 12,000 shares of common stock for a building appraised at $96,000.
- Purchased 8,000 shares of the company’s common stock for $64,000.
- Issued 20,000 shares of preferred stock for $100 per share.
- Sold 5,000 shares of
treasury stock for $35,000. - Declared cash dividends of $6 per share on preferred stock and $.20 per share on common stock.
- Declared a 10 percent stock dividend on common stock to be distributed after the end of the fiscal year. The market value was $10 per share.
- Closed net income for the year, $340,000.
- Closed the Dividends and Stock Dividends accounts to
Retained Earnings .
Required:
- Record the stockholders’ equity components of the preceding transactions in T accounts. Indicate when there is no entry.
- Prepare the stockholders’ equity section of the company’s balance sheet on June 30, 20x8.
- Compute the book values per share of common stock on June 30, 20x7 and 20x8, and of preferred stock on June 30, 20x8, using the end-of-year shares outstanding.
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