Comprehensive Problem 4 Corporations

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  Can anyone help me with these questions. I need the asnwers by tomorrow Nov 2,2012.

 

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Comprehensive Problem 4 Corporations

This problem has a value of 10% of the final grade.

You are an accountant and have two clients you’ll be dealing with during this assignment. JumpinJehosaPhats is a haberdashery (Google it!), and is owned by J.J. Phats. JJ is expanding the company and is in need of advice. He has come to you to discuss the future of the company.

Part 1 – Incorporating (25% of grade)

Discuss in detail the requirements of incorporating the business, the advantages and disadvantages, and provide JJ with recommendations.

Part 2 – Account Prep (25% of grade)

Using the data provided, create the owner’s equity accounts and the shareholder’s equity section of the balance sheet after the incorporation of JumpinJehosaPhats.

Part 3 – Expansion Considerations (25% of grade)

JJ is in need of raising money to expand the company and has identified the methods that he is considering. Using the information provided, calculate any burden to the corporation and provide recommendations to JJ concerning his options.

Part 4 – Cash Flow (25% of grade)

Your second client, Bailey’s Chocolates, is asking you to produce a Cash flow from Operating Activities. Using the Indirect Method and the information provided, calculate the cash flow from Operating Activities.

Be sure to cite your resources and include supporting calculations and evidence to support your positions.

Page 1

JumpinJehosaPhats: Part 2 Information

JumpinJehosaPhats is a small business owned by JJ Phats as the sole proprietor. JJphats is incorporating the business.

On January 1, 2012 JumpinJehosaPhats Inc. has been authorized to issue 1,000,000 common shares with a Par Value of $1. In the process of incorporating, the sole proprietor owner’s equity accounts must be closed and the equity must now reflect a corporate stockholders’ equity account.

The books for the Sole Proprietorship indicate the following:

JJ Phats deposited $35,000 to start JumpinJehosaPhats

JJ Phats contributed $50,000 of equipment to start JumpinJehosaPhats

Retained Earnings December 31, 2011 = $150,000

Prepare the Stockholder’s Equity Portion of the Balance Sheet on January 1, 2012.

JumpinJehosaPhats: Part 3 Information

JumpinJehosaPhats was incorporated on January 1, 2012 and a year later it needs $10,000,000 to expand operations. JJ Phats is the sole shareholder of the corporation.

The corporation is considering three methods to raise the capital:

· issuing common shares at FMV

· issuing preferred stock with par = $1000

· issuing 10 year bonds with par = $1000

You have been hired to determine the best way for the company to obtain the funds needed which might be a single method or combination of methods. Using the following information, discuss the pros and cons of each method and provide necessary calculations to support the position you recommend.

· The company is authorized to issue 1,000,000 shares with a par value of $1.00

· On January 1, 2013 an appraisal of the company indicates that it has a current value of $25,000,000.

· On January 1, 2013 current interest rates are 3.5% APR and rising.

· On December 1, 2012 the competition (LeapinLizards Inc) issued 10,000 ten year cumulative preferred shares with par = $1000 at 3.4%

Problem

has provided statements of retained earnings, income statements, and balance

12. The company wants you to calculate the cash

Flow from Operating Activities.

Comprehensive Problem 4: Part 4

Bailey’s Chocolates

sheets for the months of January and February

20

flow from operating activities for the period ending February 2012 using the indirect method.

Using the Indirect Method produce a

Cash

Cash Flows from Operating Activities (Indirect Method)

Net Cash Flow from Operating Activities

Given Information

Bailey’s Chocolates Bailey’s Chocolates

Income Statement Bailey’s Chocolates

Month Ending January 31, 2012

Revenue

Cost of Good Sold

Gross Margin

Expenses

Salary Expense

– 0

Expense

20 Supplies Expense 30

Expense

Office Equipment Expense

$ 9,930

1,000 Rent Expense 1,000

Insurance Expense 100

100 Interest Expense-Note 100

1,000 Interest Expense-Mortgage 1,000 Bailey’s Chocolates

Depreciation Expense-Building

Statement of Retained Earnings

Depreciation Expense-Equipment 250 Month Ending February 29, 2012

Total Expenses

$ 9,930 Net Income

$ 9,930

$ 10,795

Bailey’s Chocolates Bailey’s Chocolates

Balance Sheet Increase in Retained Earnings $ 10,795

Month Ending January 31, 2012 Month Ending February 29, 2012

$ 10,795

Assets Liabilities

Current Assets Current Liabilities

Cash

Cash

Accounts Payable

200 Accounts receivable

Salary Payable

Inventory

Total Current Liab

Supplies 150 Supplies

150

Prepaid Office Equipment 100 Long-Term Liabilities

1,500

Prepaid Rent 500 Notes Payable $ 48,000

1,500

Security Deposit 1,500 Int Pay-Note 500

400

Prepaid Insurance

Mortgage Payable 480,000

Total Current Assets

Int Pay-Mort 3,000

Total LT Liabilities

Property, Plant & Equipment Total Liabilities

Building

Building 500,000

Acc Dep-Building

Shareholder’s Equity

Equipment

Equipment 9,000 Common Stock $ 6,000

Acc Dep-Equipment

8,500 APIC-Common 60,000

Retained Earnings 9,930 Total PP & E

Retained Earnings 10,795

Total Equity

$ 610,030 Total Assets

Total Liab & Equity $ 611,645

	Income Statement
		Month Ending January 31, 2012			Month Ending February 29, 2012		Statement of		Retained Earnings
	Revenue	$ 20,000	$ 2	3,000
	Cost of Good Sold	(5,000)	(7,000)	Retained earnings, January 1, 2012	$	– 0
	Gross Margin	$ 15,000	$ 16,000	Net Gain, January 31, 2012	$ 9,9	30
	Expenses
	Salary Expense	900					1,000	Less Withdrawals
			Supplies		Increase in Retained Earnings				$	9,930
	Office		Equipment		200	225	Retained earnings, January 31, 2012
	Rent Expense
	Insurance Expense					100
	Interest Expense-Note
	Interest Expense-Mortgage
	Depreciation Expense-		Building			1,		500		1,500
	Depreciation Expense-Equipment		250
	Total Expenses	$ 5,070	$ 5,205
	Net Income				$	10,795	Retained earnings, February 1, 2012
Net Gain, February 1, 2012
$ 20,725
Less Withdrawals (Dividends)	$ (9,930)
	Balance Sheet
Retained earnings, February 29, 2012
	Assets		Liabilities
	Current Assets		Current Liabilities
$ 85,260		Accounts Payable	$ 3,500	$ 90,000	$ 3,200
	Accounts receivable	10,600		Salary Payable	10,875			150
	Inventory	3,220		Total Current Liab	$ 3,700	2,750	$ 3,350
120
	Prepaid Office Equipment		Long-Term Liabilities
	Prepaid Rent		Notes Payable		$ 48,000
	Security Deposit		Int Pay-Note		400
	Prepaid Insurance		Mortgage Payable		480,000	300
	Total Current Assets	$ 102,780		Int Pay-Mort	2,000	$ 106,145
	Total LT Liabilities	$ 530,400	$ 531,500
	Property, Plant & Equipment		Total Liabilities	$ 534,100	$ 534,850
	500,000
	Acc Dep-Building	(1,500)	49	8,500		Shareholder’s Equity	(3,000)	497,000
	9,000		Common Stock		$ 6,000
	Acc Dep-Equipment	(250)	8,750		APIC-Common		60,000	(500)
	Total PP & E	$ 507,250	$ 505,500
	Total Equity	$ 75,930	$ 76,795
	Total Assets		$ 610,030		Total Liab & Equity		$ 611,645