COMMENT ON POST AS SOON AS POSSIBLE-THANKS I agree with the CPA\'s opinion. The

Question

COMMENT ON POST AS SOON AS POSSIBLE-THANKS

I agree with the CPA's opinion. The original journal entry made by the companies accountant is wrong. They did have a bond liability of $20,000 but only received $10,000 in preferred stock. The other $10,000 seems to be a large amount of debt gone considering the company is not doing so great financially. I believe external investors should know details like this. A situation like this should be disclosed in the notes to the financial statements and therefore investors would be aware.

Explanation / Answer

Answer In this case original entry is not wrong because a company capital structure may consist equity share capital, preferred share capital, Debenture, bonds, note payable, debentures etc. A company decides his capital structure from above source as per his earning and risk bearing policy. In above case company got $10,000 from preferred stock and remaining $10,000 from debt. Company debt-equity ratio is (Debt/equity) 1 times. This is optimum level of this ratio. These types of details not require to disclose in notes to the financial statement.

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