Chapter 13, Problem P13.45BPGB

To determine

1)

Introduction:

Classes of shares:

• Shares provide partial ownership or a “share” of a corporation. There are two primary classes of shares – Equity Shares and Preference Shares.

• Equity shares are the class of shares which carry voting rights and equity share holders are the true owners of the company as in the event of dissolution, equity shareholders get last preference in clearing the amounts invested and there is no guarantee of profits will be debited by dividend on an annual basis.

• Preference shares are the class of shares which do not carry voting rights and in the event of dissolution, preference shareholders get first preference in clearing the amounts invested and there is usually guarantee of profits will be debited by dividend on an annual basis.Convertible Preference shares are preference shares that carry the option to be converted into equity shares after certain duration.

Journal Entries

• Journal entries are the first step in recording financial transactions and preparation of financial statements.

• These represent the impact of the financial transaction and demonstrate the effect on the accounts impacted in the form of debits and credits.

• Assets and expenses have debit balances and Liabilities and Incomes have credit balances and according to the business transaction, the accounts are appropriately debited will be credited by credited to reflect the effect of business transactions and events.

To Prepare:

Record of transactions in journal entry format.

To determine

2)

Introduction:

Statement of Retained Earnings

• Statement of Retained Earnings is a reconciliatory statement prepared to track the changes in the net balance of retained earnings.

• Statement of Retained Earnings seeks to reconcile the difference between the opening and closing balance of the retained earnings.

• The statement records the opening balance, net income for the year, dividends paid and closing balance of the retained earnings for the reporting period.

To Prepare:

Statement of Retained Earnings

To determine

3)

Introduction:

Statement of Stockholders Equity

• An essential element of the Balance sheet, the Statement of Stockholders Equity records the closing balances of the various components of the Stockholders equity such as Paid in capital, Excess of Paid in Capital over Par value and Retained Earnings for the period.

• When shares are issued, the par value is recorded in the Paid in capital account and if shares are issued at a price greater than the par value, they are said to be issued at a premium. This premium on issue is recorded in the Excess of Paid in Capital over Par value account.

• Retained earnings are the balance of net income for the period after deduction of operating and revenue expenses.

To Prepare:

Statement of Stockholders equity