In scenario (a), Adria sold 86,000 worth of no par value common stock, giving up 40% control of her company. She now maintains 60% ownership of Success Systems. The upside for Adria is that she now has increased equity of the company, which will allow her to expand, however she has now given 40% of the voting rights to her sister Cicely.
In scenario (b), Adria sells 860 shares of $100 par value, 7% preferred stock to her uncle. The upside to this transaction is that Uncle Marcello has no voting power in the company. The downside is that he must be paid a 7% dividend per share, whenever issued. It is good that the dividend is not cumulative preferred because Uncle Marcello has no rights to prior period’s unpaid dividends if one was not declared in those periods.
In scenario (c), Adria borrowed $86,000 from a bank on a 7%, 10-year note payable. The upside to choosing to do this is that she relinquishes no voting control of the company, however, she now must make installment payments of principal and interest for the next 10 years.
Problem #2 …show more content…
400 x $50 = $20,000. Journal Entry 2 records the sales commission of $300 on the purchase of the Johnson & Johnson stock. Journal Entry 3 records the purchase of 200 shares of Starbucks common stock at $22 per share. 200 x $22 = $4,400. Journal Entry 4 records the sales commission of $250 on the purchase of the Starbucks stock. Journal Entry 5 records the Fair Value Adjustment Trading for both stocks. The fair value of the Johnson & Johnson stock on June 30, 2014 is $22,000, which is an unrealized gain of $2000. The fair value of the Starbucks stock is $3800, which is an unrealized loss of $600. The fair value adjustment equals the difference between the portfolios cost and its fair value, in this case an unrealized gain of