Identifying and Analyzing Financial Statement Effects of Stock TransactionsThe stockholders' equity of Verrecchia Company at December 31, 2011, follows: Common stock, $ 5 par value, 350,000 shares authorized; 150,000 shares issued and outstanding $ 750,000 Paid-in capital in excess of par value 600,000 Retained earnings 346,000 During 2012, the following transactions occurred:Jan. 5 Issued 10,000 shares of common stock for $12 cash per share.Jan. 18 Purchased 4,000 shares of common stock for the treasury at $14 cash per share.Mar. 12 Sold one-fourth of the treasury shares acquired January 18 for $17 cash per share.July 17 Sold 500 shares of the remaining treasury stock for $13 cash per share.Oct. 1 Issued 5,000 shares of 8%, $25 par value preferred stock for $35 cash per share. This is the first issuance of preferred shares from the 50,000 authorized shares. Prepare the December 31, 2012, stockholders' equity section of the balance sheet assuming that the company reports net income of $72,500 for the year. Use a negative sign with your answer for treasury stock. Stockholders' Equity Paid-in capital 8% Preferred stock, $25 par value, 50,000 shares authorized, 5,000 shares issued and outstanding Answer Common stock, $5 par value, 350,000 shares authorized; 160,000 shares issued Answer Answer Additional paid-in capital Paid-in capital in excess of par value-preferred stock Answer Paid-in capital in excess of par value-common stock Answer Paid-in capital from treasury stock Answer Answer Total paid-in capital Answer Retained earnings Answer Answer Less: Treasury stock (2,500 shares) at cost (use a negative sign with your answer) Answer Total Stockholders' Equity Answer
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.
Identifying and Analyzing Financial Statement Effects of Stock Transactions
The
| Common stock, $ 5 par value, 350,000 shares authorized; 150,000 shares issued and outstanding | $ 750,000 |
| Paid-in capital in excess of par value | 600,000 |
| 346,000 |
During 2012, the following transactions occurred:
Jan. 5 Issued 10,000 shares of common stock for $12 cash per share.
Jan. 18 Purchased 4,000 shares of common stock for the treasury at $14 cash per share.
Mar. 12 Sold one-fourth of the treasury shares acquired January 18 for $17 cash per share.
July 17 Sold 500 shares of the remaining
Oct. 1 Issued 5,000 shares of 8%, $25 par value preferred stock for $35 cash per share. This is the first issuance of
Prepare the December 31, 2012, stockholders' equity section of the balance sheet assuming that the company reports net income of $72,500 for the year.
Use a negative sign with your answer for treasury stock.
| Stockholders' Equity | ||
|---|---|---|
| Paid-in capital | ||
| 8% Preferred stock, $25 par value, 50,000 shares authorized, 5,000 shares issued and outstanding | Answer | |
| Common stock, $5 par value, 350,000 shares authorized; 160,000 shares issued | Answer | Answer |
| Additional paid-in capital | ||
| Paid-in capital in excess of par value-preferred stock | Answer | |
| Paid-in capital in excess of par value-common stock | Answer | |
| Paid-in capital from treasury stock | Answer | Answer |
| Total paid-in capital | Answer | |
| Retained earnings | Answer | |
| Answer | ||
| Less: Treasury stock (2,500 shares) at cost (use a negative sign with your answer) | Answer | |
| Total Stockholders' Equity | Answer |
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