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CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 13-2LESSON 13-2
Financial Statements and Analysis
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 13-2
INCOME STATEMENT INCOME STATEMENT FOR A CORPORATIONFOR A CORPORATION page 377
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 13-2
INCOME STATEMENT INCOME STATEMENT FOR A CORPORATIONFOR A CORPORATION page 377
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 13-2
ACCEPTABLE AND ACTUAL ACCEPTABLE AND ACTUAL COMPONENT PERCENTAGESCOMPONENT PERCENTAGES page 378
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 13-2
SHARE OF NET INCOME SHARE OF NET INCOME ASSIGNED TO PREFERRED STOCKASSIGNED TO PREFERRED STOCK page 378
Calculating Share of Net Income for Preferred Stock
Total Par Value Dividend Rate =Preferred Stock’s
Share of Net Income
$170,000.00 8% = $13,600.00
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 13-2
Total Net IncomePreferred Stock’s
Share of Net Income
=Common Stock’s
Share of Net Income
SHARE OF NET INCOME SHARE OF NET INCOME ASSIGNED TO COMMON STOCKASSIGNED TO COMMON STOCK page 378
Calculating Share of Net Income for Preferred Stock
$96,742.51 $13,600.00 = $83,142.51
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 13-2
EARNINGS PER SHAREEARNINGS PER SHARE page 379
Calculating Earnings per Share
Share of Net Income
Shares of Stock Outstanding
= Earnings per Share÷
$83,142.51 31,950 = $2.60÷
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 13-2
STATEMENT OF STOCKHOLDERS’ EQUITY STATEMENT OF STOCKHOLDERS’ EQUITY FOR A CORPORATIONFOR A CORPORATION page 379
2.2. Retained earnings section2.2. Retained earnings section
1.1. Paid-in capital section1.1. Paid-in capital section
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 13-2
Total Stockholders’
Equity
Shares of Capital Stock Outstanding
= Equity per Share
÷
ANALYZING A STATEMENT OF ANALYZING A STATEMENT OF STOCKHOLDERS’ EQUITYSTOCKHOLDERS’ EQUITY page 380
Calculating Equity per Share
$170,000.00 1,700 = $100.00÷Preferred
448,655.86 31,950 = 14.04÷Common
$618,655.86Total
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 13-2
Calculating Price-Earnings Ratio
Market Priceper Share
Earnings per Share
=Price-Earnings
Ratio÷
$19.50 $2.60 = 7.5 times÷
ANALYZING A STATEMENT OF ANALYZING A STATEMENT OF STOCKHOLDERS’ EQUITYSTOCKHOLDERS’ EQUITY page 380
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 13-2
BALANCE SHEET FOR BALANCE SHEET FOR A CORPORATIONA CORPORATION page 381
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 13-2
BALANCE SHEET FOR BALANCE SHEET FOR A CORPORATIONA CORPORATION page 381
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 13-2
Beginning Book Value
=Allowance for Uncollectible
Accounts Beginning Balance
–Accounts
Receivable Beginning Balance
ACCOUNTS RECEIVABLE ACCOUNTS RECEIVABLE TURNOVER RATIOTURNOVER RATIO
Calculating the average book value of accounts receivable
page 382
$124,579.31=2÷$128,536.91)+($120,621.71
$128,536.91=$6,697.63–$135,234.54
Ending Book Value=Allowance for Uncollectible Accounts Ending Balance
–Accounts
Receivable Ending Balance
$120,621.71=$4,362.18–$124,983.89
Average Book Value of Accounts
Receivable=2÷
Ending Book Value of Accounts Receivable
+Beginning Book
Value of Accounts Receivable
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 13-2
ACCOUNTS RECEIVABLE ACCOUNTS RECEIVABLE TURNOVER RATIOTURNOVER RATIO
Calculating the accounts receivable turnover ratio
page 382
Net Sales on Account
Average Book Value of Accounts
Receivable=
Accounts Receivable
Turnover Ratio÷
$861,356.72 $124,579.31 = 6.9 times÷
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 13-2
ACCOUNTS RECEIVABLE ACCOUNTS RECEIVABLE TURNOVER RATIOTURNOVER RATIO
Calculating the average number of days for payment
page 382
Days in YearAccounts
Receivable Turnover Ratio
=Average Number of Days for Payment÷
365 6.9 = 53÷
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 13-2
Average Stockholders’
Equity=2÷
December 31 Stockholders’
Equity+
January 1 Stockholders’
Equity
$498,622.11=2÷$618,655.86)+($378,588.35
19.4%=$498,622.11÷$96,742.51
Rate Earnedon Average
Stockholders’ Equity=
AverageStockholders’
Equity÷
Net Incomeafter FederalIncome Tax
RATE EARNED ON AVERAGE RATE EARNED ON AVERAGE STOCKHOLDERS’ EQUITYSTOCKHOLDERS’ EQUITY
Calculate average stockholders’ equity
page 383
Calculate the rate earned
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 13-2
AverageTotal Assets
=2÷December 31Total Assets
+January 1
Total Assets
$838,573.69=2÷$952,171.03)+($724,976.34
11.5%=$838,573.69÷$96,742.51
Rate Earned onAverage Total
Assets=
AverageTotal Assets
÷Net Income
after FederalIncome Tax
RATE EARNED ON RATE EARNED ON AVERAGE TOTAL ASSETSAVERAGE TOTAL ASSETS
Calculate average total assets
page 383
Calculate the rate earned
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 13-2
TERMS REVIEWTERMS REVIEW
earnings per share equity per share market value price-earnings ratio rate earned on average stockholders’ equity rate earned on average total assets
page 365
