Reference no: EM132684130

Question - Kate has decided to take on an investor. Taylor Kasey believe's that Kate's Cards represents a good investment and wishes to invest money to help Kate expand the business. Kate however is somewhat unsure how to structure Taylor's investment. Taylor wishes to be an equity investor rather than simply providing a loan to Kate. Kate wants to know whether she should issue Taylor common stock or preferred stock for her investment

1. What is the difference between the two classes of stock and suggest which type is more appropriate for Kate to issue?

2. Kate has decided that she does not want to give up voting control of Kate's Cards. Since Taylor prefers to be a passive investor, but does which to have a steady income from dividends, the decision is made to issue 50 shares of $100 par value, six percent cumulative preferred stock. Provide the journal entry to record the issuance of the preferred stock for cash.

3. Kate also wishes to pay dividends on both her common shares and the preferred stock. She is a little confused between cash and stock dividends. Explain the difference. Since Kate is the only stockholder of the common stock, what would be the effect of issuing a 10% stock dividend?

4. Kate decides to issue cash dividends on both the common stock and the preferred stock. Currently there are 50 outstanding preferred shares and 500 common shares outstanding. The dividends that Kate paid were $6 per share on preferred shares and $2 per share on common shares. provide the journal entry for the payment of cash dividends.

5. Kate's cards has a net income of $1,500 for the current month of August. Kate had decided that the business with have a fiscal year-end of August 31, so this is the completion of the companies first year. Kate will be preparing her annual financial statements; however, she would also like to see a monthly statement of retained earnings for August. In addition, she would like to see how the stockholders' equity section of the balance sheet will look after the addition of the preferred stock. The stockholders equity section from July is below:

Stockholders equity

common stock (5,000 shares authorized, 500 shares issued and outstanding) $500

Paid-in capital in excess of par value - common stock $9500

Retained earnings $15,000

Total Stockholders equity $25,000

Create a statement of retained earnings for the month of August and the stockholders equity section of the balance sheet for the end of August?