Assignment Submission: Chapter 13 Discussion 1. What is the difference between a

Question

Assignment Submission: Chapter 13 Discussion 1. What is the difference between a stock dividend and a stock split? 2. What are organization expenses? Provide a couple of examples. 3. How are EPS results computed for a corporation with no preferred stock? What is the main limitation of using book vale per share to value a corporation? 4. List the general rights of common stockholders. 5. A corporation reacquires 10,000 shares of its own $25 par common stock for $420,000 recording it at cost. (a) what effect does this transaction have on revenue or expense for the period? (b) What effect does it have on stockholder's equity? 6. Why do laws place limits on treasury stock purchases?

Explanation / Answer

1. Stock dividend and Stock Split:

Stock dividend is issued to plough back the retained earnings into the common stock. It increases the shares held by the shareholders. It increases number of shares and the share face value or par value won't change.

Stock split is for example splitting $10 par value share into two $5 par value shares. It splits a higher denomination par value share into multiple lower denomination par value shares.

2. Organization expenses:

These refer to the initial expenses incurred on incorporating an organization. For example, underwriting expenses, legal fees etc.

3. EPS results for a corporation with no preferred stock:

If the organization doesn't have any preferred stock, entire net income earned is attributable to the equity shareholders and there is no need to deduct preference dividend thereon.

Main limitation of using book value per share to value a corporation:

If a corporation is valued based on book value, its value would be much lesser compared to the fair market values.

4. General rights of common stockholders:

a. Right to participate in dividends.

b. Right to vote in meetings.

c. Right to participate as directors of the corporation.

d. Right to sell their stock

e. Right to participate in assets of the business in the time of liquidation after the creditors are paid.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.