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Chapter 13: Q46PGB_3 (page 721)

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?

Short Answer

Expert verified

Answer

40,000 shares at $75 per share will be needed to issue to raise $3,000,000.

Step by step solution

01

Basic Introduction-

Issue price $3

Anticipated market price of a share $75

Capital to be raised $3,000,000

02

Computation of shares-

Noofstocktobeissued=TotalamountofcapitaltoberaisedMarketpricepershare=$3,000,000$75=40,000shares

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Most popular questions from this chapter

On January 3, Halsall Corporation purchased 2,000 shares of the company鈥檚 \(2 par value common stock as treasury stock, paying cash of \)8 per share. On January 30, Halsall sold 1,200 shares of the treasury stock for cash of $10 per share. Journalize these transactions.

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?

Organizing a corporation and issuing stock

Montel and Jeremy 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 $350,000 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

2. Would you recommend they initially issue preferred or common stock?Why?

Computing dividends on preferred and common stock and journalizing

The following elements of stockholders鈥� equity are from the balance sheet of Sneed Marketing Corp. at December 31, 2017:

800,000

Preferred Stock鈥�4%, \(2 Par Value; 80,000 shares

authorized, 55,000 shares issued and outstanding

Paid-In Capital:

\) 110,000

Stockholders鈥� Equity

Common Stock鈥�$0.10 Par Value; 8,750,000 shares

authorized, 8,000,000 shares issued and outstanding

Sneed paid no preferred dividends in 2017.

Requirements

2. Record the journal entries for 2018 assuming that Sneed Marketing Corp. declared the dividends on July 1 for stockholders of record on July 15. Sneed paid the dividends on July 31

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.
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