Cash Effects Accounting Help

Transactions between the corporation and lts owners that inCrease or decrease cash are presented in the statement of cash flows as financing activities. Examples are the saleand repurchase of stock
and the payment of cash dividends. Stock dividends and stock splits, on the other hand,’ are Important transactions that affect the
company’s stockholders! equity, but they do not anect the company’s cash. Accordingly, they are not included in the statement of cash flows as financing activities.

These transactions represent changes comprehensibility’s stockholders’ equity, but they do not affect the total amount of stockholders’. equity, nor do they affect the company’s cash Slatemant of Stockholders’ Equity Many corporations expand their statement of retained earnings to show the changes during the year in all of the stockholder’s equity accounts. This expanded statement, called a statement or stockholders’ equity, is illustrated below for Shore Line Corporation balances .


The top line of the statement includes the beginning balance of each major category of stockholders’ equity.

Notice that the fourth column, Retained Earnings, is identical to the statement of retained earnings for Shore Line Corporation that was presented on page 529. All events and transactions that affect retained earnings are the same as those presented in that illustration (prior period adjustment, distribution of stock dividend, net income,and declaration of cash dividends on both preferred and common stock). We have added several other stock transactions to illustrate the full range of information you will typically find in a statement of stockholders’ equity Issuance of common stock for $260,000 (resulting in an increase in both common stock and .additional paid-in capital) .
• Conversion of shares of preferred stock into common stock at $100,000, resulting in a decrease in 5%’ convertible preferred stock and an increase in common stock and additional paid-in capital
• Purchase of $47,000 of treasury stock, increasing the amount of treasury stock and decreasing the total of stockholders’ equity

Stockholders’ Equity Section of the Balance Sheet

The stockholders’ equity section of a balance sheet illustrated below includes many of the items discussed in this chapter, For illustrative purposes, we also show the computation of book value per share.

(This computation is not shown in an actual balance sheet.) You should be able to explain the nature and origin of each account and disclosure printed in red The published financial statements of lending corporations indicate that there is ‘bp one standard arrangement for the various items making up the stockholders’ equity section.

valuations occur in the selection of titles, in the sequence of items, and in the ex: tent of detailed classification. Many companies, in an effort to avoid excessive detail in the balance sheet, will combine several related ledger accounts into a single balance
• sheet item.


Posted on November 21, 2015 in Income and Changes Retained Earnings

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