1. Financial Statements for a Corporation
Chapter 15
Financial Statements for a Corporation

2. Financial statements for a Corporation
Revisiting accounting concepts:
Adequate Disclosure – provide accurate financial information
Consistent Reporting – reported the same way each fiscal period
Income statement – reports revenue, cost of merchandise sold, gross profit on sales, expenses, and net income/loss
Balance sheet – reports assets, liabilities, and stockholders’ equity on a specific date
Statement of stockholders’ equity – reports changes in a corporation’s ownership for a fiscal period
Statement of cash flows – report summarizing cash receipts and payments during a fiscal period

3. 11. Preparing and analyzing an income statement
Income statement for a sole proprietorship
Income statement for a corporation

4. 11. Preparing and analyzing an income statement
Net sales – total sales less sales discount and sales returns and allowances
Cost of merchandise sold – the original price of all merchandise sold during a fiscal period
Gross profit on sales – revenue remaining after cost of merchandise sold is deducted from net sales (used to determine how effectively business is buying and selling merchandise)

5. INCOME STATEMENT INFORMATION ON A WORK SHEET
page 448
LESSON 15-1

6. REVENUE SECTION OF AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS
page 449 1 2 3 4 5 8 9 6 7
1. Heading
6. Contra account amounts
2. Revenue section
7. Contra account total
3. Title of revenue account
8. Net Sales
4. Sales amount
9. Net sales amount
5. Less contra accounts
LESSON 15-1

7. COST OF MERCHANDISE SOLD SECTION OF AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS
page 450
1. Cost of Merchandise Sold section
2. Beginning inventory 1
3. Purchases section 2
4. Total cost of merchandise available for sale 3 4
5. Ending inventory 5 6
6. Cost of merchandise sold
LESSON 15-1

8. COMPLETING AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS
page 452
1. Gross Profit on Sales
2. Expenses section 7 1
3. Net Income before Federal Income Tax
4. Less Federal Income Tax Expense 2
5. Net Income after Federal Income Tax
6. Double lines 3
7. Component percentage 4 6 5
LESSON 15-1

9. 11. Preparing and analyzing an income statement
Acceptable component percentages: determined by making comparisons with previous fiscal periods as well as with industry standards published by industry organizations
Actions to correct unacceptable percentages: – the goal of any business is to earn an acceptable net income; when unacceptable percentages exist, management must take action
Examples:
1. Increase sales revenue (how?)
2. Decrease cost of merchandise (how?)
3. Small increase in sales, small decrease in cost
4. Review individual expenses

10. 11. Preparing and analyzing an income statement
Financial ratio – a comparison between two items of financial information
Earnings per share – the amount of net income after federal income tax belonging to a single share of stock (one of the most widely used measure of a corporation’s financial performance)
Price-earnings ratio (P-E ratio) – the relationship between the market value per share and earnings per share of stock (lower = sluggish growth; higher = dynamic growth)

11. FINANCIAL RATIOS Earnings per Share Earnings per Share =
page 459
Earnings per Share
Earnings per Share =
Number of Shares Outstanding ÷
Net Income after Federal Income Tax
$80,313.95 ÷
2,500 =
$32.13
Price-Earnings Ratio
Price-Earnings Ratio =
Earnings per Share ÷
Market Price per Share
$345.00 ÷
$32.13 =
10.7
LESSON 15-2

12. 12. Preparing a statement of stockholders’ equity
2 part: capital stock and retained earnings
Par value – a value assigned to a share of stock and printed on the stock certificate

13. CAPITAL STOCK SECTION OF THE STATEMENT OF STOCKHOLDERS’ EQUITY
page 461 1 2 3 4 5
1. Heading
2. Capital Stock and Par Value
3. Stock at the beginning of the year
4. Stock issued during the year
5. Total stock issued at the end of the year
LESSON 15-3

14. RETAINED EARNINGS SECTION OF THE STATEMENT OF STOCKHOLDERS’ EQUITY
page 462 1 3 5 2 4 6 7
1. Retained Earnings
4. Dividends declared
2. Beginning balance
5. Increase in retained earnings
3. Net income after federal income tax
6. Ending balance
7. Total stockholders’ equity
LESSON 15-3

15. 13. Preparing a balance sheet
Balance sheet for a sole proprietorship

16. 13. Preparing a balance sheet
page 469
Balance sheet for a corporation
LESSON 15-4
(continued on next slide)

17. (continued from previous slide)
page 469
(continued from previous slide)
LESSON 15-4

18. 13. Preparing a balance sheet
Information obtained from the work sheet AND equity statement
Business having both current and plant assets: list separate
Assets with contra accounts have: (1) asset balance; (2) contra account balance; (3) book value listed (next slide)
Current liabilities – liabilities due within a short time (usually one year)
Long-term liabilities – liabilities owed for more than a year

19. CURRENT ASSETS SECTION OF A BALANCE SHEET
page 465 1 2 3 4 5
1. Heading
4. Remaining current asset accounts
2. Begin assets section
5. Current assets
3. Book value of accounts receivable
LESSON 15-4

20. PLANT ASSETS SECTION OF A BALANCE SHEET
LESSON 15-4
4/23/2017
PLANT ASSETS SECTION OF A BALANCE SHEET
page 466 1 2 4 3 5
1. Write the heading Plant Assets.
2. Calculate the book value of office equipment.
3. Use the same procedure to calculate the book value of store equipment.
4. Calculate total plant assets.
5. Calculate total assets.
LESSON 15-4
Blue

21. LIABILITIES SECTION OF A BALANCE SHEET
page 467
1. Heading
2. Account title and amount of each current liability 1
3. Total liabilities 2 3
LESSON 15-4

22. 13. Preparing a balance sheet
Some corporations call the stockholders’ equity section owner’s equity

23. STOCKHOLDERS’ EQUITY SECTION OF A BALANCE SHEET
page 468 6 1 3 2 4 5
1. Stockholders’ Equity
5. Total liabilities and stockholders’ equity
2. Capital stock
6. Double rules
3. Retained earnings
4. Total stockholders’ equity
LESSON 15-4