Smith Corporation is reviewing the following transactions for its year-ended December 31, 2015. For each item listed, indicate the: Name of the account to use. Whether it is current or long-term, asset or liability. The amount. On December 15, 2015 the company declared a $2.00 per share dividend on 40,000 shares of common stock outstanding, to be paid on January 5, 2013 Credit sales for year amounted to $10,000,000. Smith estimates its Allowance for Doubtful Accounts as 3% of credit sales. At December 31, bonds payable of $100,000,000 are outstanding. The bonds pay 12% interest every September 30 and mature in installments of $25,000,000 every September 30. Bonuses to key employees based on net income for 2015 are estimated to be $150,000. Included in long-term investments are 10-year U.S. Treasury bonds that mature March 31, 2016. The bonds were purchased November 20, 2015. The accounts receivable account includes $20,000 due in three years from employees. The property, plant, and equipment account is stated at cost, except that it includes a parcel of land purchased for investment purposes at a cost of $40,000. Because of rising land prices, the value of the land has been written up to $60,000. The company has an independent appraisal that attests to this amount Curent liabilities include $50,000 for long-term debt that is due in three months. The company has received a firm commitment to refinance the debt for five years and intends to do so. Investments in marketable securities include $20,000 in short-term, high-grade commercial paper, which matures in 60 days.
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.
Smith Corporation is reviewing the following transactions for its year-ended December 31, 2015.
For each item listed, indicate the:
- Name of the account to use.
- Whether it is current or long-term, asset or liability.
- The amount.
- On December 15, 2015 the company declared a $2.00 per share dividend on 40,000 shares of common stock outstanding, to be paid on January 5, 2013
- Credit sales for year amounted to $10,000,000. Smith estimates its Allowance for Doubtful Accounts as 3% of credit sales.
- At December 31, bonds payable of $100,000,000 are outstanding. The bonds pay 12% interest every September 30 and mature in installments of $25,000,000 every September 30.
- Bonuses to key employees based on net income for 2015 are estimated to be $150,000.
- Included in long-term investments are 10-year U.S. Treasury bonds that mature March 31, 2016. The bonds were purchased November 20, 2015.
- The accounts receivable account includes $20,000 due in three years from employees.
- The property, plant, and equipment account is stated at cost, except that it includes a parcel of land purchased for investment purposes at a cost of $40,000. Because of rising land prices, the value of the land has been written up to $60,000. The company has an independent appraisal that attests to this amount
- Curent liabilities include $50,000 for long-term debt that is due in three months. The company has received a firm commitment to refinance the debt for five years and intends to do so.
- Investments in marketable securities include $20,000 in short-term, high-grade commercial paper, which matures in 60 days.
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