Accounting for stock transactions is important in business. Understanding the accounting for the sale of stock, dividends, and treasury stock is important in understanding the equity of a business. In this Discussion, you will look at how businesses finance operations through equity.

This weeks Discussion focuses on Activity 8-4 located on page 318 of your textbook, which reads as follows:

Living Smart has decided to expand its operations to owning and operating long term health care facilities. The following is an excerpt from a conversation between the chief executive officer, Mark Vierra, and the vice president of finance, Jolin Kilcup.

Mark: Jolin, have you given any thought to how were going to finance the acquisition of St. George Health Care?

Jolin: Well, the two basic options, as I see it, are to issue either preferred stock or bonds. The equity market is a little depressed right now. The rumor is that the Federal Reserve Banks going to increase the interest rate either this month or next.

Mark: Yes, Ive heard the rumor. The problem is that we cant wait around to see whats going to happen. Well have to move on this next week if we want any chance to complete the acquisition of St. George.

Jolin: Well, the bond market is strong right now. Maybe we should issue debt this time around.

Mark: Thats what I would have guessed as well. St. Georges financial statements look pretty good, except for the volatility of its income and cash flows. But thats characteristic of the industry.

Discuss the advantages and disadvantages of issuing preferred stock versus bonds.