Chapter 13: 1RQ (page 707)
What is a corporation?
A corporation is an organization that includes generally a group of people or a company that is authorized by the state to act as a single entity and recognized as such in law for specific purposes.
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What does earnings per share report, and how is it calculated?
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.
a. Ownership and management are separated.
Computing earnings per share
HEB Corporation had net income for 2018 of \(60,450. HEB had 15,500 shares of common stock outstanding at the beginning of the year and 20,100 shares of common stock outstanding as of December 31, 2018. During the year, HEB declared and paid preferred dividends of \)2,600. Compute HEB’s earnings per share.
Journalizing dividend and treasury stock transactions, preparing a statement of retained earnings, and preparing stockholders’ equity
The balance sheet of Cullins Management Consulting, Inc. at December 31, 2017, reported the following stockholders’ equity:
Common Stock—\(10 Par Value; 200,000 sharesauthorized, 22,000 shares issued and outstandingPaid-In Capital:
163,000
\) 220,000
580,000
Retained Earnings
Total Stockholders’ Equity \( 743,000
Stockholders’ Equity
Paid-In Capital in Excess of Par—Common 360,000
Total Paid-In Capital
During 2018, Cullins completed the following selected transactions:
Feb. 6 Declared a 5% stock dividend on common stock. The market value of
Cullins’s stock was \)25 per share.
15 Distributed the stock dividend.
Jul. 29 Purchased 2,000 shares of treasury stock at \(25 per share.
Nov. 27 Declared a \)0.20 per share cash dividend on the common stock outstanding.
Requirements
1. Record the transactions in the general journal.
2. Prepare a retained earnings statement for the year ended December 31, 2018. Assume Cullins’s net income for the year was $87,000.
3. Prepare the stockholders’ equity section of the balance sheet at December 31, 2018.
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
2. Would you recommend they initially issue preferred or common stock? Why?
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