Horngren's Financial & Managerial Accounting (5th Edition)
5th Edition
ISBN: 9780133866292
Author: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura
Publisher: PEARSON
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Textbook Question
Chapter 13, Problem 13.35AP
Organizing a corporation and issuing stock
John and Michael are opening a paint store. There are no competing paint stores in the area. They must decide how to organize the business. They anticipate profits of $100,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership,
Requirements
1. What is the main advantage they gain by selecting a corporate form of business now?
2. Would you recommend they initially issue preferred or common stock? Why?
3. If they decide to issue $10 par common stock and anticipate an initial market price of $40 per share, how many shares will they need to issue to raise $2,250,000?
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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…
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…
Scenario.
Two graduate students started an appliance business in an area where there is no competition. Their fundamental decision is how to organize the business. They anticipate super-profits 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 and as such, they feel the corporate form of operation will be best for the long term. They seek your advice.
State three (3) of the main advantage they gain by selecting a corporate form of business now.
Would you recommend they initially issue preferred or common stock? Why?
If the corporation when formed sets a par value for its shares low and issue common stock for a price above par, what is this amount above par called? Can this amount be treated as a gain, income, or profit for the corporation? Please give the reason for your answer.
Chapter 13 Solutions
Horngren's Financial & Managerial Accounting (5th Edition)
Ch. 13 - Prob. 1QCCh. 13 - Prob. 2QCCh. 13 - Suppose Value Home and Garden Imports issued...Ch. 13 - Prob. 4QCCh. 13 - Prob. 5QCCh. 13 - Assume that a company paid 6 per share to purchase...Ch. 13 - Prob. 7QCCh. 13 - A small stock dividend a. decreases common stock....Ch. 13 - Jackson Health Foods has 8,000 shares of 2 par...Ch. 13 - Prob. 10QC
Ch. 13 - Prob. 1RQCh. 13 - Prob. 2RQCh. 13 - How does authorized stock differ from outstanding...Ch. 13 - What are the four basic rights of stockholders?Ch. 13 - How does preferred stock differ from common stock?Ch. 13 - Prob. 6RQCh. 13 - What are the two basic sources of stockholders'...Ch. 13 - Prob. 8RQCh. 13 - If stock is issued for assets other than cash,...Ch. 13 - Prob. 10RQCh. 13 - Where and how is treasury stock reported on the...Ch. 13 - What is the effect on the accounting equation when...Ch. 13 - What are the three relevant dates involving cash...Ch. 13 - How does cumulative preferred stock differ from...Ch. 13 - What is a stock dividend?Ch. 13 - Prob. 16RQCh. 13 - What are some reasons corporations issue stock...Ch. 13 - Prob. 18RQCh. 13 - What does the statement of retained earnings...Ch. 13 - What is a prior-period adjustment?Ch. 13 - Prob. 21RQCh. 13 - What does earnings per share report, and how is it...Ch. 13 - What is the price/earnings ratio, and how is it...Ch. 13 - What does the rate of return on common stock show,...Ch. 13 - Prob. 13.1SECh. 13 - Journalizing issuance of stock- at par and at a...Ch. 13 - Journalizing issuance of stock-no-par Ashford...Ch. 13 - Journalizing issuance of stock- stated value...Ch. 13 - Journalizing issuance o f stock for assets other...Ch. 13 - Prob. 13.6SECh. 13 - Accounting for cash dividends Frenchroast Company...Ch. 13 - Dividing cash dividends between preferred and...Ch. 13 - Prob. 13.9SECh. 13 - Prob. 13.10SECh. 13 - Prob. 13.11SECh. 13 - Preparing a statement of retained earnings Tinder,...Ch. 13 - Analyzing the effect of prior-period adjustments...Ch. 13 - Prob. 13.14SECh. 13 - Prob. 13.15SECh. 13 - Prob. 13.16SECh. 13 - Prob. 13.17ECh. 13 - Prob. 13.18ECh. 13 - Journaling issuance of stock Skylar Systems...Ch. 13 - Prob. 13.20ECh. 13 - Prob. 13.21ECh. 13 - Prob. 13.22ECh. 13 - Journalizing treasury stock transactions and...Ch. 13 - Journalizing issuance of s tock and treasury stock...Ch. 13 - Computing dividends on preferred and common stock...Ch. 13 - Computing dividends on preferred and common stock...Ch. 13 - Journalizing a stock dividend and reporting...Ch. 13 - Prob. 13.28ECh. 13 - Reporting stockholders' equity after a stock split...Ch. 13 - Determining the effects of cash dividends, stock...Ch. 13 - Prob. 13.31ECh. 13 - Prob. 13.32ECh. 13 - Computing earnings per share and price/earnings...Ch. 13 - Computing rate of return on common stockholders'...Ch. 13 - Organizing a corporation and issuing stock John...Ch. 13 - Identifying sources of equity, stock issuance, and...Ch. 13 - Prob. 13.37APCh. 13 - Journalizing dividends and treasury stock...Ch. 13 - Journalizing dividend and treasury stock...Ch. 13 - Prob. 13.40APCh. 13 - Prob. 13.41BPCh. 13 - Prob. 13.42BPCh. 13 - Prob. 13.43BPCh. 13 - Journalizing dividends and treasury stock...Ch. 13 - Journalizing dividend and treasury stock...Ch. 13 - Prob. 13.46BPCh. 13 - Sources of equity and journalizing stock issuance...Ch. 13 - Prob. 13.1CTFSCCh. 13 - Prob. 13.1CTCA
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