Santana Rey created Business Solutions on October 1, 2019. The company has been successful, and Santana plans to expand her business. She believes that an additional $86,000 is needed and is investigating three funding sources.

a. Santana’s sister Cicely is willing to invest $86,000 in the business as a common shareholder. Because Santana currently has about $129,000 invested in the business, Cicely’s investment will mean that Santana will maintain about 60% ownership and Cicely will have 40% ownership of Business Solutions.

b. Santana’s uncle Marcello is willing to invest $86,000 in the business as a preferred shareholder. Marcello would purchase 860 shares of $100 par value, 7% preferred stock.

c. Santana’s banker is willing to lend her $86,000 on a 7%, 10-year note payable. She would make monthly payments of $1,000per month for 10 years.

Required

1. Prepare the journal entry to reflect the initial $86,000 investment under each of the options (a), (b), and (c).

2. Evaluate the three proposals for expansion, providing the pros and cons of each option.