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Chapter 13: 2RQ (page 707)
List three characteristics of a corporation.
The three characteristics of a corporation that can be listed are:
a. Separate Legal Entity
b. Limited Liability
c. Indefinite Life
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Question: Organizing a corporation and issuing stock
Jimmy and Randy are opening a comic store. There are no competing comic stores in the area. They must decide how to organize the business. They anticipate profits of \(550,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice.
Requirements
3. If they decide to issue \)3 par common stock and anticipate an initial market price of \(75 per share, how many shares will they need to issue to raise \)3,000,000?
Journalizing issuance of stock and preparing the stockholders鈥� equity section of the balance sheet
The charter for ASAP-TV, Inc. authorizes the company to issue 100,000 shares of \(5, no-par preferred stock and 500,000 shares of common stock with \)1 par value. During its start-up phase, ASAP-TV completed the following transactions:
Sep. 6 Issued 550 shares of common stock to the promoters who organized the corporation, receiving cash of \(16,500.
12 Issued 400 shares of preferred stock for cash of \)23,000.
14 Issued 1,500 shares of common stock in exchange for land with a market value of $17,000.
Requirements
1. Record the transactions in the general journal.
Identifying advantages and disadvantages of a corporation
Following is a list of advantages and disadvantages of the corporate form of business. Identify each quality as either an advantage or a disadvantage.
c. Transfer of ownership is easy.
Where and how is treasury stock reported on the balance sheet?
Question: Copperhead Trust has the following classes of stock:
Preferred Stock鈥�6%, \(12 par value; 8,500 shares authorized, 7,000 shares issued and outstanding
Common Stock鈥擻)0.10 par value; 2,100,000 shares authorized, 1,400,000 shares issued and outstanding
Requirements
3. Assume the preferred stock is noncumulative and Copperhead passed the preferred dividend in 2016 and 2017. In 2018, the company declares cash dividends of $46,000. How much of the dividend goes to preferred stockholders? How much goes to common stockholders?
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