Sandhill Company reported the following amounts in the stockholders' equity section of its December 31, 2019, balance sheet. Preferred stock, 12%, $100 par (100,000 shares authorized, 27,000 shares issued) $2,700,000 Common stock, S1 par (1,000,000 shares authorized, 277,000 shares issued) 277,000 Additional paid-in capital-common 956,000 Retained earnings 1,349,000 Total $5,282,000 During 2020, Sandhill took part in the following transactions concerning stockholders' equity. 1. Paid the annual 2019 dividend on preferred stock and a S0.50 per share dividend on common stock. These dividends had been declared on December 31, 2019. Purchased 1,100 shares of its own outstanding common stock for $8 per share. Sandhill uses the cost method. Reissued 1,100 treasury shares for land with an appraised value of S9,500. Sandhill's common shares were trading for $8.50 per share. 4. Issued 52,000 shares of common stock at $9 per share. Declared and recorded a 2:1 stock split on the outstanding common stock when the stock is selling for $10 per share. 5. Declared the annual 2020 dividend on preferred stock and the S0.50 per share dividend on common stock. These dividends are payable in 2021. 6. Prepare the December 31, 2020, stockholders' equity section. Assume 2020 net income was $609,000. 2. 3.
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.
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