Part -1:
Monahan Media
Technical Equipment & Depreciation
Technical Equipment, $2,500 cost
Estimated Residual Value, $220
At the end of the first quarter, you recorded an adjustment for depreciation based on the straight-line method (at the bank's request).
As a knowledgeable accountant, you know there are alternative methods, and good reasons for choosing Double-Declining Balance (DDB) method.
In order to explain the differences, including the benefits and disadvantages of DDB v. Straight-line, you decide to do the following:
1. Prepare a statement comparing the Depreciation Expense and Net Book Value per year under both methods (5 year life).
2. Nick has hinted that he may sell in the equipment at the end of the second year, compute the gain or loss on the sale, assuming the price is $1000. Prepare the necessary journal entries to support your work, under the S/L and DDB methods. (You should provide two entries, once assuming S/L and for DDB.)
Part -2:
Debt? Equity? Or both?
Nick is considering alternative means of raising capital (approximately $75000) to expand the business. Based on a conversation with a broker/friend at Merrill Lynch, he is considering:
- issuing approximately 5,000 shares common stock, market price estimated at $15 per share, par value = $1 per share.
- issuing approximately 2,000 shares of 3.5% preferred stock; market price $38 par value = $100 per share.
- issuing seventy-five 4%, 10-year bonds, par value = $1000 per bond.
The current interest rate for securities of similar risk and duration is 3.5% and rising.
If Monahan Media wants to raise $75,000, what alternative or combination of alternatives do you recommend?
Support your analysis with a report to your client that provides the strengths, weaknesses and costs for each alternative. Please include research from sources like: Journal of Accountancy, CPA Journal, Forbes, Wall Street Journal, Investopedia.com, or Yahoo Finance. Remember to cite all references since Nicki likes to do follow-up reading. Cutting and pasting large areas of text is unacceptable. Quoted material must have quotations. Changing one or two words is not the same as summarizing someone else's ideas and citing the source.
Part -3:
ABCs of Preferred Stock
MLG has been discussing the possibility of investing in preferred stock. Nick was too embarrassed to admit he didn't really get why some shares are "preferred."
Specifically, they are looking at three companies:
Company A: Noncumulative, nonparticipating, preferred stock with a $4-per-year dividend rate. Each share of this stock will cost $20.
Company B: Cumulative, nonparticipating, preferred stock with a $4-per-year dividend rate. Each share of this stock will cost $25.
Company C: Noncumulative, participating, preferred stock with a $4-per-year dividend rate. Each share of stock will cost $25.
Nick only has enough personal to invest in only one of the companies. Which company do you recommend? Defend your position by preparing a one-page Executive Summary comparing and contrasting the differences in the alternative preferred stock characteristics. Direct your response to your client, Nick.
Part -4:Merrill Lynch Gal (MLG)
Well.. it turns out that the "advisor" from Merrill Lynch is more than just an advisor! Now that he's started to date the Merrill Lynch Gal (We'll call her MLG for short), Nick wants to learn more about financial terms and concepts so that he can more easily keep up with the conversation when MLG talks about her work. (As an aside, she's also learning about F-stops and other photo and graphic arts terminology to be able to understand what Nick's talking about too.)
Nick has asked you to prepare a Pamphlet -or- Short Video -or- Prezi -or- PINTEREST Page -or- other creative resource to help him learn about the following concepts:
1. Treasury Stock. What is it? Why does a company have it? How is it accounted for? Where does it show up in the financial statements? See if you can provide an example of a company that has reported Treasury Stock in its financial statements within the past three years.
2. What is a stock split? Why would a company choose to split its stock? How is a stock split accounted for? What are the effects of a stock split? Provide a real world example of a company that split its stock- including the company, date, type of split, and the stock price before and after the split.