The balance sheets at the end of each of the first two years of operations indicate the following: Kellman Company Year 2 Year 1 Total current assets $612,540 $570,063 Total investments 69,979 41,491 Total property, plant, and equipment 901,201 676,355 Total current liabilities 109,794 82,215 Total long-term liabilities 312,986 227,704 Preferred 9% stock, $100 par 80,829 80,829 Common stock, $10 par 535,444 535,444 Paid-in capital in excess of par-common stock 64,196 64,196 Retained earnings 480,471 297,521 Using the balance sheets for Kellman Company, if net income is $117,455 and interest expense is $31,395 for Year 2, and the market price of common shares is $46, what is the price-earnings ratio on common stock for Year 2 (rounded to two decimal places)?
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 balance sheets at the end of each of the first two years of operations indicate the following:
| Kellman Company | ||
| Year 2 | Year 1 | |
| Total current assets | $612,540 | $570,063 |
| Total investments | 69,979 | 41,491 |
| Total property, plant, and equipment | 901,201 | 676,355 |
| Total current liabilities | 109,794 | 82,215 |
| Total long-term liabilities | 312,986 | 227,704 |
| 80,829 | 80,829 | |
| Common stock, $10 par | 535,444 | 535,444 |
| Paid-in capital in excess of par-common stock | 64,196 | 64,196 |
| 480,471 | 297,521 |
Using the balance sheets for Kellman Company, if net income is $117,455 and interest expense is $31,395 for Year 2, and the market price of common shares is $46, what is the price-earnings ratio on common stock for Year 2 (rounded to two decimal places)?
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