On January 1, 2012, Kristen Corporation had the following stockholders’ equity accounts. Common Stock ($20 par value, 60,000 shares issued and outstanding) $1,200,000 Paid-in Capital in Excess of Par—Common Stock 200,000 Retained Earnings 600,000 During the year, the following transactions occurred. Feb. 1 Declared a $1 cash dividend per share to stockholders of record on February 15, payable March 1. Mar. 1 Paid the dividend declared in February. Apr. 1 Announced a 2-for-1 stock split. Prior to the split, the market price per share was $36. July 1 Declared a 10% stock dividend to stockholders of record on July 15, distributable July 31. On July 1, the market price of the stock was $13 per share. 31 Issued the shares for the stock dividend. Dec. 1 Declared a $0.50 per share dividend to stockholders of record on December 15, payable January 5, 2013. 31 Determined that net income for the year was $350,000. Instructions (a) Journalize the transactions and the closing entry for net income. (b) Enter the beginning balances, and post the entries to the stockholders’ equity accounts. (Note: Open additional stockholders’ equity accounts as needed.) (c) Prepare a stockholders’ equity section at December 31.
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.
On January 1, 2012, Kristen Corporation had the following
accounts.
Common Stock ($20 par value, 60,000 shares issued and
outstanding) $1,200,000
Paid-in Capital in Excess of Par—Common Stock 200,000
During the year, the following transactions occurred.
Feb. 1 Declared a $1 cash dividend per share to stockholders of record on February 15, payable March 1.
Mar. 1 Paid the dividend declared in February.
Apr. 1 Announced a 2-for-1 stock split. Prior to the split, the market price per share was $36.
July 1 Declared a 10% stock dividend to stockholders of record on July 15, distributable
July 31. On July 1, the market price of the stock was $13 per share.
31 Issued the shares for the stock dividend.
Dec. 1 Declared a $0.50 per share dividend to stockholders of record on December 15, payable January 5, 2013.
31 Determined that net income for the year was $350,000.
Instructions
(a) Journalize the transactions and the closing entry for net income.
(b) Enter the beginning balances, and
(Note: Open additional stockholders’ equity accounts as needed.)
(c) Prepare a stockholders’ equity section at December 31.
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