Scenario:Jay and Kay are opening a pain store to be registered as J&K Paint Shop Company Ltd. There is no other competing pain shop in the area, but their fundamental decision is how to organize the business and they anticipate a substantial profit in the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice based on answers to the following questions:Questions:Which of the following characteristics is an advantage of the corporate form of business?Higher degree of government regulationThe potential to raise large amounts of capitalSeparation of ownership and managementDouble taxation Which of the following statements describes the corporate characteristic termed limited liability?The liabilities of the corporation cannot be extended to the personal assets of the shareholder.Shares of stock can be readily bought and sold by investors on the open market.Shareholders are not authorized to sign contracts or make business commitments on behalf of the corporation.Corporations pay income tax on corporate earnings, and shareholders pay personal income tax on corporate dividends and gains from sale of stock. Please refer to the equity section of the balance sheet shown as follows: Preferred stock$100 par, 10,000 shares authorized, 1,000 shares issued$100,000Common stock$1 par, 500,000 shares authorized, ? shares issued20,000Paid-in capital in excess of par -common stock 350,000Retained earnings (74,000)Total stockholders' equity $396,000 The amount shown for Retained earnings would be called a(n):net loss.earnings shortfall.retained earnings deficit.loss on sale of stock. 4. Based on the info above, determine the number of common stock issued. 5. Based on the info above determine the issue/market price for the common stock. 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, 2021. In addition, J&K Paint Shop Company’s charter will authorize 1,200,000 shares of common stock (to be divided into two classes (700,000 shares class A -voting rights and 500,000 shares class B -nonvoting rights) and 400,000, $X par value (see info below), 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 first name initial. (Hint!!!! Example first Manuel will use the initial M and that person should only use the info presented in line with the heading with their first name 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 class A 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 first name initial in the blank/underlined space). Issued _____ shares of no-par class B stock (Please refer to table below and use only the info in line with your first name initial in the blank/underlined space). Issued _______ shares of preferred stock at par value. (Please refer to table below and use only the info in line with your first name initial in the blank/underlined space). Exchanged ______ shares of class A common stock for Office Furniture and Equipment with an appraised value of $______ and Motor Truck with an appraised value of $_____. (Please refer to table below and use only the info in line with your first name initial in the blank/underlined space). Earned Net income $______. (Please refer to table below and use only the info in line with your first name initial in the blank/underlined space) Declared interim dividends for preferred shareholders as well as $.80 per share to common stockholders. Using the info above and as a guide: Prepare the journal entries with narrations to record the following:The issuances of stock.Close out net income to retained earnings.Dividend declared.Close out dividend to retained earnings. Prepare the company’s Stockholders equity section of the balance sheet at December 31, 2021. (Hint!!!!!!!) The following information must be clearly stated/shown:information on par or par values for all classes of shares which must be shown separately.the number of shares authorized and issued where necessary.the sub total for the total paid in capital.Retained earnings.total stockholders’ equity.

Retained earnings refer to the sum value of money remaining at a company after it has distributed…

Answered: ning a pain store to be registered as…

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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Scenario:

Jay and Kay are opening a pain store to be registered as J&K Paint Shop Company Ltd. There is no other competing pain shop in the area, but their fundamental decision is how to organize the business and they anticipate a substantial profit in the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice based on answers to the following questions:

Questions:

Which of the following characteristics is an advantage of the corporate form of business?
Higher degree of government regulation
The potential to raise large amounts of capital
Separation of ownership and management
Double taxation

Which of the following statements describes the corporate characteristic termed limited liability?
The liabilities of the corporation cannot be extended to the personal assets of the shareholder.
Shares of stock can be readily bought and sold by investors on the open market.
Shareholders are not authorized to sign contracts or make business commitments on behalf of the corporation.
Corporations pay income tax on corporate earnings, and shareholders pay personal income tax on corporate dividends and gains from sale of stock.

Please refer to the equity section of the balance sheet shown as follows:

Preferred stock	$100 par, 10,000 shares authorized, 1,000 shares issued	$100,000
Common stock	$1 par, 500,000 shares authorized, ? shares issued	20,000
Paid-in capital in excess of par -common stock		350,000
Retained earnings		(74,000)
Total stockholders' equity		$396,000

The amount shown for Retained earnings would be called a(n):

net loss.
earnings shortfall.
retained earnings deficit.
loss on sale of stock.

4. Based on the info above, determine the number of common stock issued.

5. Based on the info above determine the issue/market price for the common stock.

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, 2021. In addition, J&K Paint Shop Company’s charter will authorize 1,200,000 shares of common stock (to be divided into two classes (700,000 shares class A -voting rights and 500,000 shares class B -nonvoting rights) and 400,000, $X par value (see info below), 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 first name initial. (Hint!!!! Example first Manuel will use the initial M and that person should only use the info presented in line with the heading with their first name 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 class A 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 first name initial in the blank/underlined space).

Issued _____ shares of no-par class B stock (Please refer to table below and use only the info in line with your first name initial in the blank/underlined space).

Issued _______ shares of preferred stock at par value. (Please refer to table below and use only the info in line with your first name initial in the blank/underlined space).

Exchanged ______ shares of class A common stock for Office Furniture and Equipment with an appraised value of $______ and Motor Truck with an appraised value of $_____. (Please refer to table below and use only the info in line with your first name initial in the blank/underlined space).

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

Declared interim dividends for preferred shareholders as well as $.80 per share to common stockholders.

Using the info above and as a guide:

Prepare the journal entries with narrations to record the following:

The issuances of stock.
Close out net income to retained earnings.
Dividend declared.
Close out dividend to retained earnings.

Prepare the company’s Stockholders equity section of the balance sheet at December 31, 2021. (Hint!!!!!!!) The following information must be clearly stated/shown:
- information on par or par values for all classes of shares which must be shown separately.
- 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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Please refer to the equity section of the balance sheet shown as follows:

Preferred stock	$100 par, 10,000 shares authorized, 1,000 shares issued	$100,000
Common stock	$1 par, 500,000 shares authorized, ? shares issued	20,000
Paid-in capital in excess of par -common stock		350,000
Retained earnings		(74,000)
Total stockholders' equity		$396,000

The amount shown for Retained earnings would be called a(n):

net loss.
earnings shortfall.
retained earnings deficit.
loss on sale of stock.

1. Based on the info above, determine the number of common stock issued.

2. Based on the info above determine the issue/market price for the common stock.

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