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: Answer the following questions for the Mulatto brothers. How are paid-in-capital and retained earnings: Similar? Different?
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
Requirements:
- Answer the following questions for the Mulatto brothers.
- How are paid-in-capital and retained earnings:
- Similar?
- Different?
- What are the main categories of paid-in capital?
- When does a company declare a cash dividend?
- Which characteristic of a corporation limits a stockholder's loss to the amount of his or her investment in the stock of the corporation?
- What does the term par value of stock mean?
- 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 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.
| Surname initial | # of shares issued | par value | issued price |
| J | 100,000 | $ 0.60 | $ 30.00 |
Issued _______ shares of preferred stock at par value as payment in exchange for legal services.
| Surname initials | # of shares issued |
| J | 14,000 |
Exchanged ______ shares of common stock for land with an appraised value of $______ and a building with an appraised value of $_____.
| Surname initial | # of shares issued | value of land | value of building |
| J | 260,000 | $650,000 | $500,000 |
Earned Net income $______.
| Surname Initial | Net income |
| J | 900,000 |
- Paid dividends to preferred shareholders as well as $2 per share to common stockholders.
Using the info above and as a guide:
(A). Prepare the
- The issuances of stock.
- Close out net income to retained earnings.
- Dividend paid.
- Close out dividend to retained earnings.
(B). Prepare Mulatto Company’s
-
- 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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