Joy Sun organized Ray Beam, Inc., in January 2015. The corporation immediately issued at $15 per share

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Joy Sun organized Ray Beam, Inc., in January 2015. The corporation immediately issued at $15 per share one-half of its 260,000 authorized shares of $1 par value common stock. On January 2, 2016, the corporation sold at par value the entire 10,000 authorized shares of 10 percent, $100 par value cumulative preferred stock. On January 2, 2017, the company again needed capital and issued 5,000 shares of an authorized 8,000 shares of no-par cumulative preferred stock for a total of $320,000. The no-par shares have a stated dividend of $6 per share.
The company declared no dividends in 2015 and 2016. At the end of 2016, its retained earnings were $530,000. During 2017 and 2018 combined, the company earned a total net income of $1,400,000. Dividends of 90 cents per share in 2017 and $2 per share in 2018 were paid on the common stock.
Instructions
a. Prepare the stockholders' equity section of the balance sheet at December 31, 2018. Include a supporting schedule showing your computation of retained earnings at the balance sheet date.
b. Assume that on January 2, 2016, the corporation could have borrowed $1,000,000 at 10 percent interest on a long-term basis instead of issuing the 10,000 shares of the $100 par value cumulative preferred stock. Identify two reasons a corporation may choose to issue cumulative preferred stock rather than finance operations with long-term debt.
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...
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Financial and Managerial Accounting the basis for business decisions

ISBN: 978-1259692406

18th edition

Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello

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