Lesson: 56
Topic: Corporate Financial Statements
Objectives:
Students will be able to prepare the financial statements for a corporation, including:
In addition, students will learn how to record the closing entries for a corporation.
Income Statement:
| Acme Inc. | ||
| Income Statement | ||
| For the Year Ended December 31, 2009 | ||
| Sales | $ 1,000,000.00 | |
| Cost of Goods Sold | 250,000.00 | |
| Gross Profit | 750,000.00 | |
| Operating Expenses | ||
| Hydro | $ 40,000.00 | |
| Rent | 80,000.00 | |
| Wages | 125,000.00 | |
| Supplies | 10,000.00 | |
| Total Operating Expenses | 255,000.00 | |
| Income from Operations | 495,000.00 | |
| Other Revenues and Gains | $ 20,000.00 | |
| Other Expenses and Losses | 15,000.00 | 5,000.00 |
| Income Before Income Tax | 500,000.00 | |
| Income Tax Expense | 50,000.00 | |
| Net Income | $ 450,000.00 | |
Statement of Retained Earnings:
| Acme Inc. | ||
| Statement of Retained Earnings | ||
| For the Year Ended December 31, 2009 | ||
| Retained Earnings, January 1, 2009 | $1,150,000.00 | |
| Add: Net Income | 450,000.00 | 1,600,000.00 |
| Less: Cash Dividends | $ 200,000.00 | |
| Less: Stock Dividends | 100,000.00 | 300,000.00 |
| Total Retained Earnings | $1,300,000.00 | |
Shareholder's Equity Section of the Balance Sheet:
| Shareholders’ Equity | |
| Contributed capital | |
| Share Capital: | |
| $10 Preferred Shares, no-par value, cumulative, 10,000 shares authorized, 100,000 shares issued | $1,000,000.00 |
| Common shares, $5 stated value, unlimited shares, authorized, 400,000 shares issued | 2,000,000.00 |
| Total share capital | 3,000,000.00 |
| Additional Contributed Capital: | |
| Contributed capital in excess of stated value - common shares | 200,000.00 |
| Total Contributed Capital | 3,200,000.00 |
| Retained Earnings | 1,300,000.00 |
| Total shareholders’ equity | $4,500,000.00 |
Corporate Closing Entries:
| Sales Revenue | 1,000,000.00 | |
| Other Revenues and Gains | 20,000.00 | |
| Income Summary | 1,020,000.00 | |
| To close revenue accounts. | ||
| Income Summary | 570,000.00 | |
| Hydro | 40,000.00 | |
| Rent | 80,000.00 | |
| Wages | 125,000.00 | |
| Supplies | 10,000.00 | |
| Cost of Goods Sold | 250,000.00 | |
| Other Expenses and Losses | 15,000.00 | |
| Income Tax Expense | 50,000.00 | |
| To close expense accounts. | ||
| Income Summary | 450,000.00 | |
| Retained Earnings | 450,000.00 | |
| To allocate income to Retained Earnings. | ||
| Retained Earnings | 300,000.00 | |
| Cash Dividends | 200,000.00 | |
| Stock Dividends | 100,000.00 | |
| To close Dividends account. |
Method of Instruction and Evaluation Exercise:
After a Socratic lesson guided by the PowerPoint entitled Corporations: Dividends, Retained Earnings, and Income Reporting, students will complete the following textbook exercises:
|
E14-7 (Statement of Retained Earnings) |
|
BE14-11 (Shareholder's Equity Section of Balance Sheet) |
|
These exercises will be taken up in class and students will compare their work with the exemplar. Students will then discuss any points of confusion with the teacher and with each other, and students will make any necessary corrections to their work. |
Expectations Addressed:
The expectations addressed by this lesson have been highlighted below.
Strand 3: Partnerships and Corporations
Partnerships
By the end of this course, students will:
– explain the differences between limited and general partnerships;
– record transactions relating to partnerships, including formation, admission of a new partner, retirement of a current partner, and dissolution;
– record the distribution of income among partners;
– prepare the partnership equity section of the balance sheet.Corporations
By the end of this course, students will:
– describe types of corporations (e.g., public, private, not-for-profit) and classes of shares (e.g., common, preferred, voting);
– record transactions related to common and preferred stocks (e.g., issue, buy back, subscriptions);
– record transactions related to the declaration and distribution of dividends;
– compare the impact of various forms of dividend distribution (e.g., cash dividends, stock dividends, stock splits) on shareholders’ equity;
– prepare the financial statements for a corporation, including an income statement, a statement of retained earnings, and the shareholders’ equity section of the balance sheet.
References: