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Chapter 15: Question 1Q (page 809)

In the absence of restrictive provisions, what are the basic rights of stockholders of a corporation?

Short Answer

Expert verified

The fundamental rights of each shareholder (unless restriction to the contrary) are to share proportionally.

Step by step solution

01

Definition of restrictive Provision

Restrictive Provision can be expressed as banning, restriction,orfurther condition reasonably be anticipated to have a Surviving Corporation Material Adverse Effect.

02

Basic rights of stockholders of a corporation

  1. The Profit and lossshould be shared proportionately
  2. Managementshould be shared proportionately, i.e., the voting rights for directors.
  3. Corporate assetsupon liquidation should also be shared proportionately.
  4. If there is the issue of new stockof the same class should be shared proportionately, it is called the preemptive right.

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Most popular questions from this chapter

(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

  1. Prepare the journal entries for these transactions, assuming that the common stock has a par value of \(5 per share.
  2. Prepare the journal entries for these transactions, assuming that the common stock is no-par with a stated value of \)3 per share.

(Stock Dividends and Splits) The directors of Merchant Corporation are considering the issuance of a stock dividend. They have asked you to discuss the proposed action by answering the following questions.

Instructions

  1. What is a stock dividend? How is a stock dividend distinguished from a stock split (1) from a legal standpoint and (2) from an accounting standpoint?
  2. For what reasons does a corporation usually declare a stock dividend? A stock split?
  3. Discuss the amount, if any, of retained earnings to be capitalized in connection with a stock dividend

Graves Mining Company declared, on April 20, a dividend of \(500,000 payable on June 1. Of this amount, \)125,000 is a return of capital. Prepare the April 20 and June 1 entries for Graves.

Washington Company has the following stockholders’ equity accounts at December 31, 2017.

Common Stock (\(100 par value, authorized 8,000 shares) \)480,000

Retained Earnings 294,000

Instructions

a. Prepare entries in journal form to record the following transactions, which took place during 2018.

1. 280 shares of outstanding stock were purchased at \(97 per share. (These are to be accounted for using the cost method.)

2. A \)20 per share cash dividend was declared.

3. The dividend declared in (2) above was paid.

4. The treasury shares purchased in (1) above were resold at \(102 per share.

5. 500 shares of outstanding stock were purchased at \)105 per share.

6. 350 of the shares purchased in (5) above were resold at \(96 per share.

b.Prepare the stockholders’ equity section of Washington Company’s balance sheet after giving effect to these transactions, assuming that the net income for 2018 was \)94,000. State law requires restriction of retained earnings for the amount of treasury stock.

Explain how underwriting costs and accounting and legal fees associated with the issuance of stock should be recorded.
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