JumpinJehosaPhats was incorporated on January 1, 2012 and a year later it needs $10,000,000 to expand operations. JJ Phats is the sole shareholder of the corporation. The corporation is considering three methods to raise the capital: ? issuing common shares at FMV ? issuing preferred stock with par = $1000 ? issuing 10 year bonds with par = $1000 You have been hired to determine the best way for the company to obtain the funds needed which might be a single method or combination of methods. Using the following information, discuss the pros and cons of each method and provide necessary calculations to support the position you recommend. ? The company is authorized to issue 1,000,000 shares with a par value of $1.00 ? On January 1, 2013 an appraisal of the company indicates that it has a current value of $25,000,000. ? On January 1, 2013 current interest rates are 3.5% APR and rising. ? On December 1, 2012 the competition (LeapinLizards Inc) issued 10,000 ten year cumulative preferred shares with par = $1000 at 3.4%

Comprehensive Problem 4: Part 4 Bailey's Chocolates has provided statements of retained earnings, income statements, and balance sheets for the months of January and February 2012. The company wants you to calculate the cash flow from operating activities for the period ending February 2012 using the indirect method. Using the Indirect Method produce a Cash Flow from Operating Activities. Cash Flows from Operating Activities (Indirect Method) Net Cash Flow from Operating Activities Bailey's Chocolates Bailey's Chocolates Income Statement Month Ending January 31, 2012 Income Statement Month Ending February 29, 2012 Revenue $ 20,000 Cost of Good Sold (5,000) Gross Margin $ 15,000 Expenses Salary Expense 900 Supplies Expense 20 Office Equipment Expense 200 Rent Expense 1,000 Insurance Expense 100 Interest Expense-Note 100 Interest Expense-Mortgage 1,000 Depreciation Expense-Building 1,500 Depreciation Expense-Equipment 250 Total Expenses $ 5,070 Net Income $ 9,930 Revenue $ 23,000 Cost of Good Sold (7,000) Gross Margin $ 16,000 Expenses Salary Expense 1,000 Supplies Expense 30 Office Equipment Expense 225 Rent Expense 1,000 Insurance Expense 100 Interest Expense-Note 100 Interest Expense-Mortgage 1,000 Depreciation Expense-Building 1,500 Depreciation Expense-Equipment 250 Total Expenses $ 5,205 Net Income $ 10,795 Bailey's Chocolates Retained earnings, January 1, 2012 Net Gain, January 31, 2012 Liabilities Current Assets Cash $ 85,260 Accounts receivable 10,600 Inventory 3,220 Supplies 150 Prepaid Office Equipm 150 Prepaid Rent 1,500 Security Deposit 1,500 Prepaid Insurance 400 $ 102,780 Total Current Assets Property, Plant & Equipment 498,500 Total PP & E 8,750 $ 507,250 Total Assets $ 610,030 Current Liabilities Accounts Payable Assets Retained earnings, February 1, 2012 Net Gain, February 1, 2012 $ Salary Payable Total Current Liab $ 3,500 200 3,700 Long-Term Liabilities Notes Payable Int Pay-Note Mortgage Payable Int Pay-Mort Total LT Liabilities $ 48,000 400 480,000 2,000 $ 530,400 Total Liabilities $ 534,100 Shareholder's Equity Common Stock $ 6,000 APIC-Common 60,000 Retained Earnings 9,930 $ 75,930 Total Equity Total Liab & Equity $ 610,030 Cash $ 90,000 Accounts receivable 10,875 Inventory 2,750 Supplies 120 Prepaid Office Equipm 100 Prepaid Rent 500 Security Deposit 1,500 Prepaid Insurance 300 $ 106,145 Total Current Assets Property, Plant & Equipment Building 500,000 Acc Dep-Bu (3,000) Equipment 9,000 Acc Dep-Eq (500) Less Withdrawals (Dividends) Increase in Retained Earnings Retained earnings, February 29, 2012 497,000 Total PP & E 8,500 $ 505,500 Total Assets $ 611,645 Current Liabilities Accounts Payable $ Salary Payable Total Current Liab $ 3,200 150 3,350 Long-Term Liabilities Notes Payable Int Pay-Note Mortgage Payable Int Pay-Mort Total LT Liabilities 48,000 500 480,000 3,000 $ 531,500 Total Liabilities $ 534,850 $ Shareholder's Equity Common Stock $ 6,000 APIC-Common 60,000 Retained Earnings 10,795 $ 76,795 Total Equity Total Liab & Equity $ 9,930 $ 9,930 Bailey's Chocolates Liabilities Current Assets - Statement of Retained Earnings Month Ending February 29, 2012 Balance Sheet Month Ending February 29, 2012 Assets $ $ 9,930 Less Withdrawals Increase in Retained Earnings Retained earnings, January 31, 2012 Bailey's Chocolates Balance Sheet Month Ending January 31, 2012 Building 500,000 Acc Dep-Bu (1,500) Equipment 9,000 Acc Dep-Eq (250) Bailey's Chocolates Statement of Retained Earnings Month Ending January 31, 2012 $ 611,645 $ 9,930 $ 10,795 $ 20,725 $ (9,930) $ 10,795 $ 10,795