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Chapter 15: Question 27Q (page 810)
For what reasons might a company restrict a portion of its retained earnings?
The most common reason for a company's retained earnings to be restricted is that it is behind on paying past-due dividends.
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For what reasons might a corporation purchase its own stock?
(Recording the Issuances of Common Stock) During its first year of operations, Collin Raye Corporation had the following transactions pertaining to its common stock.
Jan. 10 Issued 80,000 shares for cash at \(6 per share.
Mar. 1 Issued 5,000 shares to attorneys in payment of a bill for
\)35,000 for services rendered in helping the company to
incorporate.
July 1 Issued 30,000 shares for cash at \(8 per share.
Sept. 1 Issued 60,000 shares for cash at \)10 per share.
Instructions
In the absence of restrictive provisions, what are the basic rights of stockholders of a corporation?
(Preferred Dividends) The outstanding capital stock of Edna Millay Corporation consists of 2,000 shares of \(100 par value, 8% preferred, and 5,000 shares of \)50 par value common.
Instructions
Assuming that the company has retained earnings of $90,000, all of which is to be paid out in dividends, and that preferred dividends were not paid during the 2 years preceding the current year, state how much each class of stock should receive under each of the following conditions.
(Preemptive Rights and Dilution of Ownership) Wallace Computer Company is a small, closely-held corporation. Eighty percent of the stock is held by Derek Wallace, president. Of the remainder, 10% is held by members of his family and 10% by Kathy Baker, a former officer who is now retired. The balance sheet of the company at June 30, 2017, was substantially as shown below.
Asset
Current assets \(22,000
Equipment (net) 450,000
\)472,000
Liabilities and Stockholders鈥� Equity
Current liabilities \(50,000
Common stock 250,000
Retained earnings 172,000
\)472,000
Additional authorized common stock of \(300,000 par value had never been issued. To strengthen the cash position of the company, Wallace issued common stock with a par value of \)100,000 to himself at par for cash. At the next stockholders鈥� meeting, Baker objected and claimed that her interests had been injured.
Instructions
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