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Chapter 5: 5DQ (page 564)

The common stockholders get the last claim on the organization’s assets and income as the other investors are paid fixed income based on the contracts signed at the time of providing the capital and the remaining income is usually distributed to the owners.

Short Answer

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The common stockholders get the last claim on the organization’s assets and income as the other investors are paid fixed income based on the contracts signed at the time of providing the capital and the remaining income is usually distributed to the owners.

Step by step solution

01

Meaning of owners of the company

The equity shareholders are the owners of the company.The capital invested by the equity shareholders provides them with the ownership share of the company and they also get voting powers to make decisions for the ccompany.

02

The reason that stockholders have the last claim on the assets and residual income

The owners of the organization have the last claim on its assets and residual income. The other investors receive a fixed income based on their contracts but the common stockholders have a claim on the income that is left after fulfilling all the obligations. If the organization is generating high profits, then the owners will get more income and vice-versa.

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Most popular questions from this chapter

Discuss the relationship between the coupon rate (original interest rate at time of issue) on a bond and its security provisions. (LO16-1)

What is shelf registration? How does it differ from the traditional requirements for security offerings?

The Ellis Corporation has heavy lease commitments. Prior to SFAS No. 13, it merely footnoted lease obligations in the balance sheet, which appeared as follows:

In \( millions

In \) millions

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\(70

Current liabilities

\)30

Fixed assets

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Long-term liabilities

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Total liabilities

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Stockholder’s equity

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The footnotes stated that the company had $14 million in annual capital lease obligations for the next 20 years.

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