ea. Their fu
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?ANSWERED
2. Distinguish between par value and issue price.ANSWERED
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?ANSWERED
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
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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
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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.
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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.
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