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SP 13 Santana Rey created Business Solutions on October 1, 2019. The company has been successful, and Santana plans to expand her business. She believes that an additional $86,000 is needed and is inves- tigating three funding sources. a. Santana's sister Cicely is willing to invest $86,000 in the business as a common shareholder. Because Santana currently has about $129,000 invested in the business, Cicely's investment will mean that Santana will maintain about 60% ownership and Cicely will have 40% ownership of Business Solutions. b. Santana's uncle Marcello is willing to invest $86,000 in the business as a preferred shareholder. Marcello would purchase 860 shares of $100 par value, 7% preferred stock. c. Santana's banker is willing to lend her $86,000 on a 7%, 10-year note payable. She would make monthly payments of $1,000 per month for 10 years. Required 1. Prepare the journal entry to reflect the initial $86,000 investment under each of the options (a), (b), and (c).

SP 13 Santana Rey created Business Solutions on October 1, 2019. The company has been successful, and Santana plans to expand her business. She believes that an additional $86,000 is needed and is inves- tigating three funding sources. a. Santana's sister Cicely is willing to invest $86,000 in the business as a common shareholder. Because Santana currently has about $129,000 invested in the business, Cicely's investment will mean that Santana will maintain about 60% ownership and Cicely will have 40% ownership of Business Solutions. b. Santana's uncle Marcello is willing to invest $86,000 in the business as a preferred shareholder. Marcello would purchase 860 shares of $100 par value, 7% preferred stock. c. Santana's banker is willing to lend her $86,000 on a 7%, 10-year note payable. She would make monthly payments of $1,000 per month for 10 years. Required 1. Prepare the journal entry to reflect the initial $86,000 investment under each of the options (a), (b), and (c).

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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How do I prepare the journal entry to reflect the initial $86,000 investment under each of the options (a), (b), and (c)?

**SP 13: Investment Decisions for Business Solutions** In October 2019, Santana Rey established Business Solutions. The company is performing well, and Santana wants to expand, needing an additional $86,000. She is considering three funding proposals: 1. **Option A: Common Share Investment by Family** - **Investor**: Santana's sister, Cicely. - **Investment Details**: $86,000 as a common shareholder. - **Ownership Impact**: Currently, Santana owns approximately $129,000 worth in the business. Cicely’s investment would give her 40% ownership, while Santana retains 60%. 2. **Option B: Preferred Share Investment by Family** - **Investor**: Santana's uncle, Marcello. - **Investment Details**: $86,000 for 860 shares at $100 par value with a 7% preferred stock. 3. **Option C: Bank Loan** - **Investor**: Santana’s banker. - **Loan Details**: $86,000 loan at a 7% interest rate for 10 years. - **Repayment Terms**: Monthly payments of $1,000 over 10 years. **Required Tasks:** 1. **Journal Entry Preparation**: Record the initial $86,000 investment for each option (a), (b), and (c). 2. **Proposal Evaluation**: Analyze the pros and cons of each expansion option. 3. **Recommendation**: Decide the best option for Santana and justify the choice.
Transcribed Image Text:**SP 13: Investment Decisions for Business Solutions** In October 2019, Santana Rey established Business Solutions. The company is performing well, and Santana wants to expand, needing an additional $86,000. She is considering three funding proposals: 1. **Option A: Common Share Investment by Family** - **Investor**: Santana's sister, Cicely. - **Investment Details**: $86,000 as a common shareholder. - **Ownership Impact**: Currently, Santana owns approximately $129,000 worth in the business. Cicely’s investment would give her 40% ownership, while Santana retains 60%. 2. **Option B: Preferred Share Investment by Family** - **Investor**: Santana's uncle, Marcello. - **Investment Details**: $86,000 for 860 shares at $100 par value with a 7% preferred stock. 3. **Option C: Bank Loan** - **Investor**: Santana’s banker. - **Loan Details**: $86,000 loan at a 7% interest rate for 10 years. - **Repayment Terms**: Monthly payments of $1,000 over 10 years. **Required Tasks:** 1. **Journal Entry Preparation**: Record the initial $86,000 investment for each option (a), (b), and (c). 2. **Proposal Evaluation**: Analyze the pros and cons of each expansion option. 3. **Recommendation**: Decide the best option for Santana and justify the choice.
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