This problem has a value of 10% of the final grade.
You are an accountant and have two clients youll be dealing with during this assignment. JumpinJehosaPhats is a haberdashery (Google it!), and is owned by J.J. Phats. JJ is expanding the company and is in need of advice. He has come to you to discuss the future of the company.
Part 1 Account Prep
Using the data provided, create the owners equity accounts and the shareholders equity section of the balance sheet after the incorporation of JumpinJehosaPhats.
Part 2 Expansion Considerations
JJ is in need of raising money to expand the company and has identified the methods that he is considering. Using the information provided, calculate any burden to the corporation and provide recommendations to JJ concerning his options.
Part 3 Cash Flow
Your second client, Baileys Chocolates, is asking you to produce a Cash flow from Operating Activities. Using the Indirect Method and the information provided, calculate the cash flow from Operating Activities.
Be sure to cite your resources and include supporting calculations and evidence to support your positions.
Part 1
JumpinJehosaPhats is a small business owned by JJ Phats as the sole proprietor. JJphats is incorporating the business.
On January 1, 2012 JumpinJehosaPhats Inc. has been authorized to issue 1,000,000 common shares with a Par Value of $1. In the process of incorporating, the sole proprietor owners equity accounts must be closed and the equity must now reflect a corporate stockholders equity account.
The books for the Sole Proprietorship indicate the following:
JJ Phats deposited $35,000 to start JumpinJehosaPhats
JJ Phats contributed $50,000 of equipment to start JumpinJehosaPhats
Retained Earnings December 31, 2011 = $150,000
Prepare the Stockholders Equity Portion of the Balance Sheet on January 1, 2012.
Part 2
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%
Part 3
Please see attached Excel