UGBA 102A Lecture Notes - Lecture 11: Treasury Stock, Preferred Stock, Common Stock

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Kousha Modanlou
UGBA 102A
October 26, 2018
Chapter 11 Homework: Page 580-581 Q 4,9; Page 581 MC 3,6; Page 584, 588 E11-5; E11-18
Page 580-581
Q4: On one hand, common stock is a corporation’s basic stock and it offers voting privileges. It
may either be par value or no-par value. Depending on the evaluation from its Board of Directors
regarding profitability, a company may pay dividends. On the other hand, preferred stock is a
modified stock which lacks voting rights but still has specified rights above the common stock in
the form of cumulative dividend rights. Therefore, preferred stock normally takes priority over
common stock in terms of shareholders receiving dividends and in the distribution of assets if the
corporation is liquidated. Additionally, preferred stocks pay an agreed -upon dividend at regular
intervals and their dividends are usually higher than those of common stocks.
Q9: Treasury stock is a corporation's capital stock that was issued and then shortly reacquired by
that corporation. While held by the issuing corporation, treasury stock does not bestow any
voting, dividend, or stockholder rights. It is often purchased by the corporation with the intention
of distribution to employees via stock option plans and bonus plans. Management uses treasury
stock to boost stock price if it feels the stock is being undervalued by the market. Treasury stock
can also help raise earnings per share amounts and be useful when acquiring another company by
enabling greater shares to be on hand. With respect to a balance sheet, treasury stock should be
carried at its cost and it is shown as a deduction-- a contra equity account-- that derives the total
stockholders' equity.
Page 581
MC3: B
MC6: B
Page 584, 588
E11-5:
1.
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Document Summary

Chapter 11 homework: page 580-581 q 4,9; page 581 mc 3,6; page 584, 588 e11-5; e11-18. Q4: on one hand, common stock is a corporation"s basic stock and it offers voting privileges. It may either be par value or no-par value. Depending on the evaluation from its board of directors regarding profitability, a company may pay dividends. On the other hand, preferred stock is a modified stock which lacks voting rights but still has specified rights above the common stock in the form of cumulative dividend rights. Therefore, preferred stock normally takes priority over common stock in terms of shareholders receiving dividends and in the distribution of assets if the corporation is liquidated. Additionally, preferred stocks pay an agreed -upon dividend at regular intervals and their dividends are usually higher than those of common stocks. Q9: treasury stock is a corporation"s capital stock that was issued and then shortly reacquired by that corporation.

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