Contributed capital: 5% preference share, P50 par, cumulative, 30,000 shares issued, dividends 5 years in arrears P1,500,000 3,000,000 P4,500,000 (600,000) P3,900,000 Ordinary share, P30 par, 100,000 shares issued Deficit from operations Total shareholder's equity On July 1, the following actions were taken: a. Ordinary shareholders turned in their old Ordinary share and received in exchange new ordinary share, 1 share of the new share being exchanged for every 4 shares of the old. New ordinary share was given a stated value of P60 per share. b. One-half share of the new ordinary share was issued on each share of preference share outstanding in liquidation of dividends in arrears on preference share. c. The deficit from operations was applied against the paid-in capital arising from the ordinary share restatement. Transactions for the remainder of 2004 affecting the shareholders' equity were as follows: Oct. 1 10,000 shares of preference share were called at P55 plus dividends for 3 months at 5%. Share was formally retired. 60,000 shares of new ordinary share were sold at P65. Nov. 10 Dec. 31 Net income for the 6 months ended on this date was P400,000. (Assume that revenues and expenses were closed to a temporary account, Income summary. Use this account to complete the closing process.) The semiannual dividend was declared on preference shares, and a P0.75 dividend on ordinary shares, dividends being payable January 20, 2003.
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 shareholder’s equity of the Amongan Lumber Co. on June 30, 2004, was as follows: (see image below). Compute for the balance of Retained Earnings at December 31, 2004
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