Chap11wildtextbook

L dividend distributions l distribution of assets in

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l Dividend distributions l Distribution of assets in case of liquidation Usually has a stated dividend rate Normally has no voting rights Preferred Stock 73% 27% Corporations with no Preferred Stock Corporations with Preferred Stock 11-16
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Vs. Noncumulative Cumulative Dividends in arrears must be paid before dividends may be paid on common stock. Undeclared dividends from current and prior years do not have to be paid in future years. Cumulative or Noncumulative Dividend Most preferred stock is cumulative . 11-17
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Common stock, $5 par value; 40,000 shares authorized, issued and outstanding 200,000 $ Preferred stock, 9%, $100 par value; 1,000 shares authorized, issued and outstanding 100,000 Total Paid-In capital 300,000 $ Example: Consider the following Stockholders’ Equity Section of the Balance Sheet The Board of Directors did not declare or pay dividends in 2011. In 2012, the Board of Directors declare and pay cash dividends of $42,000. Cumulative or Noncumulative Dividend 11-18
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Reasons for Issuing Preferred Stock n To raise capital without sacrificing control n To boost the return earned by common stockholders through financial leverage n To appeal to investors who may believe the common stock is too risky or that the expected return on common stock is too low 11-19
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On May 8, Whitt, Inc. purchased 2,000 of its own shares of stock in the open market for $8,000. Purchasing Treasury Stock Treasury stock is shown as a reduction in total stockholders’ equity on the balance sheet. Cr Dr May 8 Treasury stock, common 8,000 Cash 8,000 Purchase 2,000 treasury shares at $4 per share 11-20
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On June 30, Whitt sold 100 shares of its treasury stock for $4 per share. Selling Treasury Stock at Cost $8,000 ÷ 2,000 shares = $4 cost per treasury share Dr Cr June 30 Cash 400 Treasury stock, common 400 Sold 100 shares of treasury for $4 per share 11-21
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On July 19, Whitt, Inc. sold an additional 500 shares of its treasury stock for $8 per share. Shares Per Share Total Sale 500 8.00 $ 4,000 $ Cost 500 4.00 2,000 Paid-In Capital 2,000 $ Selling Treasury Stock Above Cost Cr Dr July 19 Cash 4,000 Treasury Stock, common 2,000 Paid-In Capital, Treasury Stock 2,000 Sold 500 treasury shares for $8 per share 11-22
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On August 27, Whitt sold an additional 400 shares of its treasury stock for $1.50 per share.
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