Nicole has been financing Nicole’s Getaway Spa (NGS) using equity financing. Currently NGShas authorized 100,000 no-par preferred shares and 200,000 $2 par common shares. Outstandingshares include 50,000 preferred shares and 40,000 common shares.Recently the following transactions have taken place.a. NGS issues 1,000 preferred shares for $12 a share.b. NGS repurchases 1,000 common shares for $11 a share.c. On November 12, the board of directors declares a $0.10 cash dividend on each outstanding preferred share.d. The dividend is paid December 20.Required:1. Prepare the journal entries needed for each of the transactions.2. If you were a common shareholder concerned about your voting rights, would you preferNicole to issue additional common shares or additional preferred shares? Why?3. Describe the overall effect of each transaction on the assets, liabilities, and shareholders’equity of the company. (Use 1 for increase, 2 for decrease, and NE for no effect.)4. How would each transaction affect the ROE ratio?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

Nicole has been financing Nicole’s Getaway Spa (NGS) using equity financing. Currently NGS
has authorized 100,000 no-par preferred shares and 200,000 $2 par common shares. Outstanding
shares include 50,000 preferred shares and 40,000 common shares.
Recently the following transactions have taken place.
a. NGS issues 1,000 preferred shares for $12 a share.
b. NGS repurchases 1,000 common shares for $11 a share.
c. On November 12, the board of directors declares a $0.10 cash dividend on each outstanding preferred share.
d. The dividend is paid December 20.
Required:
1. Prepare the journal entries needed for each of the transactions.
2. If you were a common shareholder concerned about your voting rights, would you prefer
Nicole to issue additional common shares or additional preferred shares? Why?
3. Describe the overall effect of each transaction on the assets, liabilities, and shareholders’
equity of the company. (Use 1 for increase, 2 for decrease, and NE for no effect.)
4. How would each transaction affect the ROE ratio?

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 4 images

Blurred answer
Knowledge Booster
Mutual Funds
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education