Karen and Yanique are opening a jewellery store with no competition in the area from which they intend to operate their business. Their fundamental decision is how to organize the business. They anticipate super profits the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow and as such, they feel the corporate form of operation will be best for the long term. They seek your advice.

Requirements

State three of the main advantage they gain by selecting a corporate form of business now.

Would you recommend they intially issue preferred or common stock

Assume one year later (2019) the company KY Jewellers Ltd has been formed and the owners are desirous of companying several financial transactions and possible outcomes to assist in guiding their decision-making process. They have asked each student from your accounting course to prepare the companys journal entries and statement of owners equity based on the following information.

The companys charter authorizes 1,000,000 shares of common stock and 100,000 shares of preferred stock and the following are the transactions for consideration:

i.)KY Jewelers purchased a piece of land from the original owner. In payment for the land, KY Jewelers issues 400,000 shares of common stock with $1.00 par value. The land has been appraised at a market value of $1,480,000.

ii.)The company sold 110,000 shares of common stock with $1 par value

iii.)Issued 24,000 shares of $14 par value preferred stock. Shares were issued at par.

iv.) Earned net income of $1,000,000

v.)Dividend declared and paid - $0.15 per share on common stock

vi.) Dividend declared and paid - $5 per share on preferred stock

Using the information above

A. Prepare the Journal Entries and Closing Entries for the above transactions

B.Prepare the owner's equity section of the balance sheet based on the info above.