A portion of the combined statement of income and retained earnings of Blue Inc. for the current year follows. Income before extraordinary item $15,060,000 Loss from discontinued operations, net of applicable income tax (Note 1) 1,320,000 Net income 13,740,000 Retained earnings at the beginning of the year 84,220,000 97,960,000 Dividends declared: On preferred stock—$6.00 per share $300,000 On common stock—$1.75 per share 15,050,000 15,350,000 Retained earnings at the end of the year $82,610,000 Note 1. During the year, Blue Inc. suffered a major loss from discontinued operations of $1,320,000 after applicable income tax reduction of $1,220,000. At the end of the current year, Blue Inc. has outstanding 8,670,000 shares of $10 par common stock and 50,000 shares of 6% preferred. On April 1 of the current year, Blue Inc. issued 980,000 shares of common stock for $32 per share to help finance the loss from discontinued operations. Compute the earnings per share on common stock for the current year as it should be reported to stockholders. (Round answer to 2 decimal places, e.g. $2.55.)
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.
A portion of the combined statement of income and
| Income before extraordinary item |
$15,060,000
|
|||
| Loss from discontinued operations, net of applicable income tax (Note 1) |
1,320,000
|
|||
| Net income |
13,740,000
|
|||
| Retained earnings at the beginning of the year |
84,220,000
|
|||
|
97,960,000
|
||||
| Dividends declared: | ||||
| On |
$300,000
|
|||
| On common stock—$1.75 per share |
15,050,000
|
15,350,000
|
||
| Retained earnings at the end of the year |
$82,610,000
|
Note 1. During the year, Blue Inc. suffered a major loss from discontinued operations of $1,320,000 after applicable income tax reduction of $1,220,000.
At the end of the current year, Blue Inc. has outstanding 8,670,000 shares of $10 par common stock and 50,000 shares of 6% preferred. On April 1 of the current year, Blue Inc. issued 980,000 shares of common stock for $32 per share to help finance the loss from discontinued operations.
Compute the earnings per share on common stock for the current year as it should be reported to stockholders. (Round answer to 2 decimal places, e.g. $2.55.)
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