Matthew Mulatto and his brother John Mulatto plans to open a business. The major decision they face is how to organize the business. They expect to generate a massive profit during the first year. Although they have enough to start the business now as a partnership, they believe cash flow may be an issue as they grow. They believe that the corporate form of operation will be best option. They have hired you as a consultant and seek your advice. Requirements: 1. Answer the following questions for the Mulatto brothers. 2. How are paid-in-capital and retained earnings: Similar? Different? 3. What are the main categories of paid-in capital? 4. When does a company declare a cash dividend?
Scenario:
Matthew Mulatto and his brother John Mulatto plans to open a business. The major decision they face is how to organize the business. They expect to generate a massive profit during the first year. Although they have enough to start the business now as a
Requirements:
1. Answer the following questions for the Mulatto brothers.
2. How are paid-in-capital and
- Similar?
- Different?
3. What are the main categories of paid-in capital?
4. When does a company declare a cash dividend?
5. Which characteristic of a corporation limits a stockholder's loss to the amount of his or her investment in the stock of the corporation?
6. What does the term par value of stock mean?
- The owners are desirous of comparing several 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 and that Mulatto Company’s charter will authorize 1,000,000 shares of common stock and 400,000, $100 par value, 5% cumulative
preferred stock .
- Issued ________shares of common stock. Stock has par value of ___ per share and was issued at $____ per share.
|
# of shares issued |
Par Value |
Issue Price |
|
100,000 |
$ 0.60 |
$ 30.00 |
- Issued _______ shares of preferred stock at par value as payment in exchange for legal services.
|
# of shares issued |
|
14,000 |
- Exchanged ______ shares of common stock for land with an appraised value of $______ and a building with an appraised value of $_____.
|
# of shares issued |
Value of Land |
Value of Building |
|
260,000 |
$ 650,000.00 |
$ 500,000.00 |
- Earned Net income $______.
|
Net Income |
|
$ 900,000.00 |
- Paid dividends to preferred shareholders as well as $2 per share to common stockholders.
Using the info above and as a guide:
7. Prepare the
- The issuances of stock.
- Close out net income to retained earnings.
- Dividend paid.
- Close out dividend to retained earnings.
8. Prepare Mulatto Company’s
The following information must be clearly stated/shown:
- information on par values,
- 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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