AC 113 UNIT 10 DISCUSSION Unit 10: Unit 10: Liabilities and Stockholdersâ€™ Equity – Discussion Unit 10 Discussion: Accounting for stock transactions is important in business. Understanding the accounting for the sale of stock, dividends, and treasury stock is important in understanding the equity of a business. In this Discussion, you will look at how businesses finance operations through equity. This weekâ€™s Discussion focuses on Activity 8-4 located on page 318 of your textbook, which reads as follows: Living Smart has decided to expand its operations to owning and operating long term health care facilities. The following is an excerpt from a conversation between the chief executive officer, Mark Vierra, and the vice president of finance, Jolin Kilcup. Mark: Jolin, have you given any thought to how weâ€™re going to finance the acquisition of St. George Health Care? Jolin: Well, the two basic options, as I see it, are to issue either preferred stock or bonds. The equity market is a little depressed right now. The rumor is that the Federal Reserve Bankâ€™s going to increase the interest rate either this month or next. Mark: Yes, Iâ€™ve heard the rumor. The problem is that we canâ€™t wait around to see whatâ€™s going to happen. Weâ€™ll have to move on this next week if we want any chance to complete the acquisition of St. George. Jolin: Well, the bond market is strong right now. Maybe we should issue debt this time around. Mark: Thatâ€™s what I would have guessed as well. St. Georgeâ€™s financial statements look pretty good, except for the volatility of its income and cash flows. But thatâ€™s characteristic of the industry. Discuss the advantages and disadvantages of issuing preferred stock versus bonds.
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