Ben and Eric are opening a comic bookstore to be registered as E&B Comic Bookstore Co. There is no other competing comic bookstore in the area. 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. Requirements 1. What is the main advantage they gain by selecting a corporate form of business now? 2. Distinguish between par value and issue price. 3. If they decide to issue $1 par common stock and anticipate an initial market price of $80 per share, how many shares will they need to issue to raise $4,000,000? 4. 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, 2020. In addition, E&B Comic Bookstore 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 ACCT1002 Introduction to Financial Accounting 3 A. Issued 20% of authorised shares shares of class A common stock. Stock has par value $30 of per share and was issued at $40.00 per share. B. Issued 20% of authorised shares of no-par class B stock. issue price $38 ACCT1002 Introduction to Financial Accounting 4 C. Issued 40% of authorised shares shares of preferred stock at par value of $ 110.00 D. Exchanged 50% of authorised shares shares of class A common stock for Office Furniture and Equipment with an appraised value of $$ 4,000,000.00 and Motor Truck with an appraised value of $ 10,000,000.00. ACCT1002 Introduction to Financial Accounting 5 E. Earned Net income $1,800,000.00. F. Declared interim dividends for preferred shareholders as well as $.80 per share to common stockholders. Using the info above and as a guide: A. 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. B. Prepare the company’s Stockholders equity section of the balance sheet at December 31, 2020. (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. ACCT1002 Introduction to Financial Accounting
Ben and Eric are opening a comic bookstore to be registered as E&B Comic Bookstore Co. There is no other competing
comic bookstore in the area. 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
long term. They seek your advice.
Requirements
1. What is the main advantage they gain by selecting a corporate form of business now?
2. Distinguish between par value and issue price.
3. If they decide to issue $1 par common stock and anticipate an initial market price of $80 per share, how many shares
will they need to issue to raise $4,000,000?
4. 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, 2020. In addition, E&B Comic
Bookstore 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
ACCT1002 Introduction to Financial Accounting
3
A. Issued 20% of authorised shares shares of class A common stock. Stock has par value $30 of per share and was issued at $40.00 per
share.
B. Issued 20% of authorised shares of no-par class B stock. issue price $38
ACCT1002 Introduction to Financial Accounting
4
C. Issued 40% of authorised shares shares of preferred stock at par value of $ 110.00
D. Exchanged 50% of authorised shares shares of class A common stock for Office Furniture and Equipment with an appraised value of
$$ 4,000,000.00 and Motor Truck with an appraised value of $ 10,000,000.00.
ACCT1002 Introduction to Financial Accounting
5
E. Earned Net income $1,800,000.00.
F. Declared interim dividends for preferred shareholders as well as $.80 per share to common stockholders.
Using the info above and as a guide:
A. Prepare the journal entries with narrations to record the following:
• The issuances of stock.
• Close out net income to
• Dividend declared.
• Close out dividend to retained earnings.
B. Prepare the company’s
following information must be clearly stated/shown:
• information on par or par values for all classes of shares which must be shown separately.
ACCT1002 Introduction to Financial Accounting
6
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