SE1: Advantages and disadvantages of a corporation
| 1. Ease of transfer of ownership: | |||
| 2. Taxation: | |||
| 3. Separate legal entity: | |||
| 4. Lack of mutual agency: | |||
| 5. Government regulations: | |||
| 6. Continuous existence: | |||
| SE2: Effects of Start-up and organisation cost: | ||||||||||
| At the beginning of 2014, Salinas Company incurred the following start-up and organization costs: | ||||||||||
| (1) attorneys’ fees with a market value of $10,000, paid with 6,000 shares of $1 par value common stock, and | ||||||||||
| (2) incorporation fees of $6,000 cash. Calculate total start-up and organization costs. | ||||||||||
| What will be the effect of these costs on the income statement and balance sheet? | ||||||||||
| SE3: Business Applications: | ||||||||||
| Indicate whether each of the following action is related to | ||||||||||
| a) managing under the corporate form of business, b) using equity financing, c)determining dividend policies, | ||||||||||
| d)evaluating performance using return on equity or e) issuing stock options. | ||||||||||
| 1. Considering whether to make a distribution to shareholders | ||||||||||
| 2. Controlling day to day operations | ||||||||||
| 3. Determining whether to issue common or preferred stock | ||||||||||
| 4. Compensating management based on the company’s meeting or exceeding the targeted return on equity | ||||||||||
| 5. Compensating employees by giving them the right to purchase shares at a given price | ||||||||||
| 6. Transferring shares without the approval of other owners | ||||||||||
| E18A: Business Application | ||||||||||
| In 2014, Konstan Corporation earned $4.40 per share and paid a dividend of $2.00 per share. | ||||||||||
| At year-end, the price of its stock was $66 per share. Calculate the dividend yield and the price/earnings ratio. | ||||||||||
| (Round the dividend yield to the nearest tenth of a percent.) | ||||||||||
| On March 1, 2014, Kissell Corporation began operations with a charter from the state that authorized 100,000 shares of $4 par value common stock. | |||||||||||||||
| Over the next quarter, the company engaged in the transactions that follow. | |||||||||||||||
| Mar. 1 Issued 30,000 shares of common stock, $200,000. | |||||||||||||||
| 2 Paid fees associated with obtaining the charter and starting up and organizing the corporation, $24,000. | |||||||||||||||
| Apr. 10 Issued 13,000 shares of common stock, $130,000. | |||||||||||||||
| 15 Purchased 5,000 shares of common stock, $50,000 | |||||||||||||||
| May 31 The board of directors declared a $0.20 per share cash dividend to be paid on June 15 to shareholders of record on June 10. | |||||||||||||||
| Required | |||||||||||||||
| 1. Record the above transactions using T accounts. | |||||||||||||||
| 2. Prepare the stockholders equity section of Kissell’s balance sheet on May 31, 2014. | |||||||||||||||
| Net income earned during the first quarter was $30,000. | |||||||||||||||
| 3. What effect, if any, will the cash dividend declaration on May 31 have on Kissells net income, retained earnings, and cash flows? | |||||||||||||||