1. State three (3) of 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 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.
Karen and Yanique are opening a jewellery store with no competition in the area from which they intend to operate their business. 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,
Requirements:
1. State three (3) of 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 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.
4. Assume one year later (2019) the company KY Jeweller’s Ltd has been formed and the owners are desirous of companying several financial transactions and possible outcomes to assist in guiding their decision-making process. They have asked each student from your accounting course to prepare the company’s
The company’s charter authorizes 1,000,000 shares of common stock and 100,000
i) KY Jewelers purchased a piece of land from the original owner. In payment for the land, KY Jewelers issues $350,00 shares of common stock with $1.00 par value. The land has been appraised at a market value of $1,350,000.
ii) The company sold 110,000 shares of common stock with $1 par value.
iii) Issued 22,000 shares of $18 par value preferred stock. Shares were issued at par.
iv) Earned net income of $850,000.
v) Dividend declared and paid - $0.15 per share on common stock
vi) Dividend declared and paid - $5 per share on preferred stock
Using the information above and as guided:
A. Prepare the Journal entries and closing entries for the above transaction
B. Prepare the owner’s equity section of the balance sheet based on the info above.
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The advantages they gain by selecting a corporate form of business are:
1) Corporate form of business provides the organization with a legal and seperate identity. It also helps in legitimizing the presence of the organization in the market.
2) It will be much easier for a corporate to expand and grow, as it gives the organization to be listed on the stock market.
3) Corporation also provides easy funds raising advantages through the issue of shares, bonds, and debentures.
Initially, a corporation should issue common stocks instead of preference shares. It is because, under the preference shares, a fixed dividend return has to be provided. On the contrary, the common shares do not include any fixed return. Hence, for the organization's growth, there will not be any obligation of providing returns on common shares in initial years.
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