Chloe and Martin are opening a Shoe Store to be registered as CM Shoe Store. There is no other competing shoe store 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, CM Shoe Store 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. A. Issued 50% of authorised shares of class A common stock. Stock has par value of $45 per share and was issued at $75 per share. B. Issued 50% of authorised shares of no-par class B stock and was issued at $70 per share. C. Issued 25% of authorised shares of preferred stock at par value of $145 per share D. Exchanged 40% of authorised shares of class A common stock for Office Furniture and Equipment with an appraised value of $4,000,000.000 and Motor Truck with an appraised value of $10,000,000.00. E. Earned Net Income $1,400,000.00 F. Decalred and interim dividens for preferred shareholders as well as $0.80 per share to common stockholders Using the info above and as a guide: 1. 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. 2. Prepare the company’s Stockholders equity section of the balance sheet at December 31, 2020. 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.
Chloe and Martin are opening a Shoe Store to be registered as CM Shoe Store. There is no other competing shoe store 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
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, CM Shoe Store 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
A. Issued 50% of authorised shares of class A common stock. Stock has par value of $45 per share and was issued at $75 per share.
B. Issued 50% of authorised shares of no-par class B stock and was issued at $70 per share.
C. Issued 25% of authorised shares of preferred stock at par value of $145 per share
D. Exchanged 40% of authorised shares of class A common stock for Office Furniture and Equipment with an appraised value of $4,000,000.000 and Motor Truck with an appraised value of $10,000,000.00.
E. Earned Net Income $1,400,000.00
F. Decalred and interim dividens for preferred shareholders as well as $0.80 per share to common stockholders
Using the info above and as a guide:
1. Prepare the
-
The issuances of stock.
-
Close out net income to
retained earnings . -
Dividend declared.
-
Close out dividend to retained earnings.
2. Prepare the company’s
- 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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