The stockholders’ equity section of Creighton Company’s balance sheet is shown as follows: CREIGHTON COMPANY As of December 31, Year 3 Stockholders’ equity Preferred stock, $10 stated value, 7% cumulative,300 shares authorized, 50 issued and outstanding $ 500 Common stock, $10 par value, 250 shares authorized,100 issued and outstanding 1,000 Common stock, class B, $20 par value, 400 sharesauthorized, 150 issued and outstanding 3,000 Common stock, no par, 150 shares authorized,100 issued and outstanding 2,200 Paid-in capital in excess of stated value—preferred 600 Paid-in capital in excess of par value—common 1,200 Paid-in capital in excess of par value—class B common 750 Retained earnings 7,000 Total stockholders’ equity $ 16,250 Requireda. Assuming the preferred stock was originally issued for cash, determine the amount of cash collected when the stock was issued.b. Based on the class B common stock alone, determine the amount of the company’s legal capital.c. Based on the class B common stock alone, determine the minimum amount of assets that must be retained in the company as protection for creditors.d. Determine the number of shares of class B common stock that are available to sell as of December 31, Year 3.e. Assuming Creighton purchases treasury stock consisting of 25 shares of its no par common stock on January 1, Year 4, determine the amount of the no-par common stock that would be outstanding immediately after the purchase.f-1. Based on the stockholders’ equity section shown earlier, can you determine the market value of the preferred stock?f-2. If yes, what is the market value of one share of this 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.
The
| CREIGHTON COMPANY | |||
| As of December 31, Year 3 | |||
| Stockholders’ equity | |||
| Preferred stock, $10 stated value, 7% cumulative, 300 shares authorized, 50 issued and outstanding |
$ | 500 | |
| Common stock, $10 par value, 250 shares authorized, 100 issued and outstanding |
1,000 | ||
| Common stock, class B, $20 par value, 400 shares authorized, 150 issued and outstanding |
3,000 | ||
| Common stock, no par, 150 shares authorized, 100 issued and outstanding |
2,200 | ||
| Paid-in capital in excess of stated value—preferred | 600 | ||
| Paid-in capital in excess of par value—common | 1,200 | ||
| Paid-in capital in excess of par value—class B common | 750 | ||
| Retained earnings | 7,000 | ||
| Total stockholders’ equity | $ | 16,250 | |
Required
a. Assuming the preferred stock was originally issued for cash, determine the amount of cash collected when the stock was issued.
b. Based on the class B common stock alone, determine the amount of the company’s legal capital.
c. Based on the class B common stock alone, determine the minimum amount of assets that must be retained in the company as protection for creditors.
d. Determine the number of shares of class B common stock that are available to sell as of December 31, Year 3.
e. Assuming Creighton purchases
f-1. Based on the stockholders’ equity section shown earlier, can you determine the market value of the preferred stock?
f-2. If yes, what is the market value of one share of this stock?
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