Advanced Life Co. is an HMO for businesses in the Albuquerque area. The following account balances appear on the balance sheet of Advanced Life Co.: Common stock (800,000 shares authorized; 470,000 shares issued), $5 par, $2,350,000; Paid-in capital in excess of par—common stock, $1,000,000; and Retained earnings, $33,045,000. The board of directors declared a 1% stock dividend when the market price of the stock was $13 a share. Advanced Life Co. reported no income or loss for the current year. Required: a. Journalize the entries to record (1) the declaration of the dividend on December 1, capitalizing an amount equal to market value, and (2) the issuance of the stock certificates on December 31. Refer to the chart of accounts for the exact wording of the account titles. CNOW journals do not use lines for journal explanations. Every line on a journal page is used for debit or credit entries. CNOW journals will automatically indent a credit entry when a credit amount is entered. b. Determine the following amounts before the stock dividend was declared: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders’ equity. c. Determine the following amounts after the stock dividend was declared and closing entries were recorded at the end of the year: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders’ equity. Advanced Life Co. General Ledger
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.
Advanced Life Co. is an HMO for businesses in the Albuquerque area. The following account balances appear on the balance sheet of Advanced Life Co.: Common stock (800,000 shares authorized; 470,000 shares issued), $5 par, $2,350,000; Paid-in capital in excess of par—common stock, $1,000,000; and Retained earnings, $33,045,000. The board of directors declared a 1% stock dividend when the market price of the stock was $13 a share. Advanced Life Co. reported no income or loss for the current year.
Required:
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a. |
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b. |
Determine the following amounts before the stock dividend was declared: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders’ equity. |
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c. |
Determine the following amounts after the stock dividend was declared and closing entries were recorded at the end of the year: (1) total paid-in capital, (2) total retained earnings, and (3) total |
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Advanced Life Co. |
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General Ledger |
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ASSETS |
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110 |
Cash |
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120 |
Accounts Receivable |
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131 |
Notes Receivable |
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132 |
Interest Receivable |
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141 |
Merchandise Inventory |
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145 |
Office Supplies |
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151 |
Prepaid Insurance |
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181 |
Land |
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193 |
Equipment |
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194 |
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LIABILITIES |
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210 |
Accounts Payable |
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221 |
Notes Payable |
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226 |
Interest Payable |
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231 |
Cash Dividends Payable |
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241 |
Salaries Payable |
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261 |
Mortgage Note Payable |
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EQUITY |
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311 |
Common Stock |
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312 |
Paid-In Capital in Excess of Par-Common Stock |
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315 |
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321 |
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322 |
Paid-In Capital in Excess of Par-Preferred Stock |
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331 |
Paid-In Capital from Sale of Treasury Stock |
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340 |
Retained Earnings |
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350 |
Stock Dividends Distributable |
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351 |
Cash Dividends |
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352 |
Stock Dividends |
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REVENUE |
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410 |
Sales |
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610 |
Interest Revenue |
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EXPENSES |
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510 |
Cost of Merchandise Sold |
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515 |
Credit Card Expense |
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520 |
Salaries Expense |
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531 |
Advertising Expense |
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532 |
Delivery Expense |
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533 |
Selling Expenses |
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534 |
Rent Expense |
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535 |
Insurance Expense |
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536 |
Office Supplies Expense |
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537 |
Organizational Expenses |
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562 |
Depreciation Expense-Equipment |
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590 |
Miscellaneous Expense |
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710 |
Interest Expense |
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