he year-end balance sheet of Social Systems, Inc. includes the following stockholders’ equity section (with certain details omitted): Stockholders’ equity: 8% cumulative preferred stock, $100 par value, callable at $104, 100,000 shares authorized................................................. $3,200,000 Common stock, $3 par value, 1,000,000 shares authorized................................................................................................. 1,200,000 Additional paid-in capital: Common stock........................................................ 2,800,000 Donated capital............................................................................................... 610,000 Retained earnings............................................................................................ 3,470,000 Total stockholders’ equity....................................................................... $11,280,000 Instructions From this information, compute answers to the following questions: How many shares of preferred stock have been issued? What is the total amount of the annual dividends paid to preferred stockholders? How many shares of common stock are 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 year-end balance sheet of Social Systems, Inc. includes the following
Stockholders’ equity:
8% cumulative
callable at $104, 100,000 shares authorized................................................. $3,200,000
Common stock, $3 par value, 1,000,000 shares
authorized................................................................................................. 1,200,000
Additional paid-in capital: Common stock........................................................ 2,800,000
Donated capital............................................................................................... 610,000
Total stockholders’ equity....................................................................... $11,280,000
Instructions
From this information, compute answers to the following questions:
- How many shares of preferred stock have been issued?
- What is the total amount of the annual dividends paid to preferred stockholders?
- How many shares of common stock are outstanding?
- What was the average issuance price per share of common stock?
- What is the amount of legal capital?
- What is the total amount of paid-in capital?
- What is the book value per share of common stock? (There are no dividends in arrears.)
- Assume that retained earnings at the beginning of the year amounted to $815,000 and the net income for the year was $4,200,000. What was the dividend declared during the year on each share of common stock? (Hint: Net income increases retained earnings, whereas dividends decrease retained earnings.)
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