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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Mr. Chua in his plan for expansion by putting up a branch of his grocery near Cubao, has decided to take the third option. Incorporating under the business name, “Chua Groceries, Inc. “He figures that he needs a subscribed and paid-up capital of P 100 million to be submitted to the Securities and Exchange Commission (Sec). He has only P 50 million cash in the bank. He invited two close friends to chip in the balance of P 50 million to make up for the balance. Mr. Chua wants to be elected as president and his wife as treasurer of the company. His two friends would be elected vice-president and corporate secretary, respectively. While Mr. Chua, his wife and son, the manager of the planned branch of the grocery store would control the day-to-day operations of the company, he does not feel comfortable with the 50-50 sharing of the capital. What if relations with his two friends turn sour in the future? Aggressive and ambitious that Mr. Chua is, what worries him is if he further expands the grocery business in the future and the two friends do not agree, there would be a deadlock in the voting. His two friends could be a bar to his future expansion plans. Mr. Chua decided to be owned and controlled by him. He needs therefore P 2 million more for his paid-up capital to assure control of the company. His problem is, where would he get that much money fast? Which sources of funds could Mr. Chua avail of on credit?

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