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Matthew Mulatto and his brother John Mulatto plans to open a business. The major decision...

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Question

Accounting

Matthew Mulatto and his brother John Mulatto plans to open a business. The major decision they face is how to organize the business. They expect to generate a massive profit during the first year. Although they have enough to start the business now as a partnership, they believe cash flow may be an issue as they grow. They believe that the corporate form of operation will be best option. They have hired you as a consultant and seek your advice.

Requirements:

  1. Answer the following questions for the Mulatto brothers.

  1. How are paid-in-capital and retained earnings:
  • Similar?
  • Different?

  1. What are the main categories of paid-in capital?

  1. When does a company declare a cash dividend?

  1. Which characteristic of a corporation limits a stockholder's loss to the amount of his or her investment in the stock of the corporation?

  1. What does the term par value of stock mean?

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