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
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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Financial & Managerial Accounting Custom Edition For University Of South Dakota Volume 2, 1/e
- Steve Osbourne is considering opening a business, but the major decision faced is how to organize the business. Steve anticipates generating a massive profit during the first year and that the following years should be relatively profitable. Although he has enough to start the business now as a partnership, he believes cash flow may be an issue as the company grows. Steve believes that the corporate form of operation will be his best option and have hired you as a consultant and seek your advice. Is it true or false that corporations muse issue common stock, but may or may not decide to issue preferred stock? Is it true or false that all forms and classes of stock carry voting rights? Is it true of false that stock sold for amounts in excess of par value results in a gain reported on the income statement?arrow_forwardScenario:Steve Osbourne is considering opening a business, but the major decision faced is how to organize the business. Steveanticipates generating a massive profit during the first year and that the following years should be relatively profitable.Although he has enough to start the business now as a partnership, he believes cash flow may be an issue as thecompany grows. Steve believes that the corporate form of operation will be his best option and have hired you as aconsultant and seek your advice. e) Is it true or false that all forms and classes of stock carry voting rights?f) Is it true of false that stock sold for amounts in excess of par value results in a gain reported on the incomestatement?arrow_forwardKaren 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, 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 . 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 answerarrow_forward
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