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Explain. L 0 4 PROBLEM 1 1 . 3 B Stockholders' Equity in a Balance Sheet 1 0 6 Joy Sun organized Ray Beam, Inc.,
Explain.
L PROBLEM B
Stockholders' Equity in a Balance Sheet
Joy Sun organized Ray Beam, Inc., in January The corporation immediately issued at $ per share onehalf of its authorized shares of $ par value common stock. On January the corporation sold at par value the entire authorized shares of percent, $ par value cumulative preferred stock. On January the company again needed money and issued shares of an authorized shares of nopar cumulative preferred stock for a total of $ The nopar shares have a stated dividend of $ per share.
The company declared no dividends in and At the end of its retained earnings were $ During and combined, the company earned a total of $ Dividends of cents per share in and $ per share in were paid on the common stock.
Instructions
a Prepare the stockholders' equity section of the balance sheet at December Include a supporting schedule showing your computation of retained earnings at the balance sheet date. Hint: Income increases retained earnings, whereas dividends and net losses decrease retained earnings.
b Assume that on January the corporation could have borrowed $ at percent interest on a longterm basis instead of issuing the shares of the $ par value cumulative preferred stock. Identify two reasons a corporation may choose to issue cumulative preferred stock rather than finance operations with longterm debt.
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