Matthew Mulatto and his brother John Mulatto plans to open a business. The major decision they face is how to organize the business. They expect to generate a massive profit during the first year. Although they have enough to start the business now as a partnership, they believe cash flow may be an issue as they grow. They believe that the corporate form of operation will be best option. They have hired you as a consultant and seek your advice. Requirements: Answer the following questions for the Mulatto brothers. How are paid-in-capital and retained earnings:Similar?Different? What are the main categories of paid-in capital? When does a company declare a cash dividend? Which characteristic of a corporation limits a stockholder's loss to the amount of his or her investment in the stock of the corporation? What does the term par value of stock mean? The owners are desirous of comparing serval financial transactions and possible outcomes to assist in guiding their decision-making process. They assume that the company will be formed on January 1, 2020 and that Mulatto Company’s charter will authorize 1,000,000 shares of common stock and 400,000, $100 par value, 5% cumulative preferred stock. They have asked each student from your accounting course to prepare the company’s journal entries and statement of owner’s equity based on the following information which is grouped according to your surname name initial. (Hint!!!! Example surname Manuel will use the initial M and that person should only use the info presented in line with the heading with their surname initial. You are not allowed to use info associated other initials other than that of your own as this will result in the forfeiture of the grade.) Issued ________shares of common stock. Stock has par value of ___ per share and was issued at $____ per share. (please refer to table below and use only the info in line with your surname initial in the blank/underlined space) Issued _______ shares of preferred stock at par value as payment in exchange for legal services. (please refer to table below and use only the info in line with your surname initial in the blank/underlined space) Exchanged ______ shares of common stock for land with an appraised value of $______ and a building with an appraised value of $_____. (please refer to table below and use only the info in line with your surname initial in the blank/underlined space) Earned Net income $______. (please refer to table below and use only the info in line with your surname initial in the blank/underlined space) Paid dividends to preferred shareholders as well as $2 per share to common stockholders.Using the info above and as a guide: (need to solve) Prepare the journal entries with narrations to record the following:The issuances of stock.Close out net income to retained earnings.Dividend paid.Close out dividend to retained earnings. Prepare Mulatto Company’s Stockholders equity section of the balance sheet at December 31, 2020. (Hint!!!!!!!) The following information must be clearly stated/shown: information on par values, the number of shares authorized and issued where necessary.the sub total for the total paid in capital.Retained earnings.total stockholders’ equity.

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Answered: Matthew Mulatto and his brother John…

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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Matthew Mulatto and his brother John Mulatto plans to open a business. The major decision they face is how to organize the business. They expect to generate a massive profit during the first year. Although they have enough to start the business now as a partnership, they believe cash flow may be an issue as they grow. They believe that the corporate form of operation will be best option. They have hired you as a consultant and seek your advice.

Requirements:

Answer the following questions for the Mulatto brothers.

How are paid-in-capital and retained earnings:

Similar?
Different?

What are the main categories of paid-in capital?

When does a company declare a cash dividend?

Which characteristic of a corporation limits a stockholder's loss to the amount of his or her investment in the stock of the corporation?

What does the term par value of stock mean?

The owners are desirous of comparing serval financial transactions and possible outcomes to assist in guiding their decision-making process. They assume that the company will be formed on January 1, 2020 and that Mulatto Company’s charter will authorize 1,000,000 shares of common stock and 400,000, $100 par value, 5% cumulative preferred stock. They have asked each student from your accounting course to prepare the company’s journal entries and statement of owner’s equity based on the following information which is grouped according to your surname name initial. (Hint!!!! Example surname Manuel will use the initial M and that person should only use the info presented in line with the heading with their surname initial. You are not allowed to use info associated other initials other than that of your own as this will result in the forfeiture of the grade.)

Issued ________shares of common stock. Stock has par value of ___ per share and was issued at $____ per share. (please refer to table below and use only the info in line with your surname initial in the blank/underlined space)

Issued _______ shares of preferred stock at par value as payment in exchange for legal services. (please refer to table below and use only the info in line with your surname initial in the blank/underlined space)

Exchanged ______ shares of common stock for land with an appraised value of $______ and a building with an appraised value of $_____. (please refer to table below and use only the info in line with your surname initial in the blank/underlined space)

Earned Net income $______. (please refer to table below and use only the info in line with your surname initial in the blank/underlined space)

Paid dividends to preferred shareholders as well as $2 per share to common stockholders.

Using the info above and as a guide: (need to solve)

Prepare the journal entries with narrations to record the following:

The issuances of stock.

Close out net income to retained earnings.

Dividend paid.

Close out dividend to retained earnings.

Prepare Mulatto Company’s Stockholders equity section of the balance sheet at December 31, 2020. (Hint!!!!!!!) The following information must be clearly stated/shown:

information on par values,
the number of shares authorized and issued where necessary.
the sub total for the total paid in capital.
Retained earnings.
total stockholders’ equity.

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