Does issuing stock reduce the risk of bankruptcy?
Bankruptcy risk is reduced whn issuing stock because dividends are not required to be declared and you do not have to pay stockholders' back at some set future date. Dividends are not tax dedcutoble (but interest payments are). Issuing stock does bring in new ownership so control (percentage of ownership by existing owners) is reduced.
Why do companies issue large stock dividends and stock splits?
Large stock dividends and stock splits are issued primarily to: A. Lower the trading price of the stock per share. B. Increase the number of authorized shares. C. Increase legal capital. D. Increase the number of outstanding shares. A. The Common Stock account on a company's balance sheet is measured as: A.
How do companies choose the mix of debt and equity?
b. Credit Treasury Stock $10,800 d. Debit Cash $15,000 a. Bond contract. b. Carrying value d. Accounting equation Just a definition. Companies choose the mix between debt and equity they employ to purchase assets.
Which of the following is an example of a financing activity?
The receipt of interest is classified as an operating activity. The repayment of long-term debt is a financing activity but would be a cash outflow not an inflow. Paying cash dividends is an example of a financing activity.
What is the most likely explanation for the use of preferred stock from a corporate viewpoint?
What is the most likely explanation for the use of preferred stock from a corporate viewpoint? Most corporations that issue preferred stock do so to achieve a balance in their capital structure.
Why is preferred stock better than common?
Preferred stock may be a better investment for short-term investors who can't hold common stock long enough to overcome dips in the share price. This is because preferred stock tends to fluctuate a lot less, though it also has less potential for long-term growth than common stock.
When stock is issued and then repurchased by the issuing firm what stock is referred to as?
The corporation's own stock that has been issued and then repurchased by the company is referred to as: Preferred Stock.
What is the primary reason for declaring a stock split?
The primary reason companies declare a large stock dividend or a stock split is to lower the trading price of the stock to a more acceptable trading range, making it more attractive to a large number of potential investors.
Why do companies issue preferred stock?
Companies issue preferred stock as a way to obtain equity financing without sacrificing voting rights. This can also be a way to avoid a hostile takeover. A preference share is a crossover between bonds and common shares.
What are the advantages of common stocks?
List of the Advantages of Common StocksYou can invest in companies with limited liability. ... Common stocks offer a higher earning potential. ... You can easily purchase common stock on virtually any trading platform. ... Common stocks can provide dividends. ... You can trade common stocks in a variety of ways.More items...•
Why would a shareholder prefer to not receive dividends from a business?
Reason 1: Financial Trouble The chief cause of a dividend suspension is the issuing company is under financial strain. Because dividends are issued to shareholders out of a company's retained earnings, a struggling company may choose to suspend dividend payments to safeguard its financial reserves for future expenses.
How do corporations issue shares?
To issue stock in a corporation, you can use a simple bill of sale. Stock is issued to fund the corporation—in the Articles of Incorporation, the corporation sets the number of shares the corporation is authorized to issue. The corporation then decides how many shares of stock it will initially issue.
Which of the following rights is most commonly enhanced in an issue of preference share?
Enables a preference shareholder to accumulate dividends equal to the par value of the shares. Which of the following shareholder rights is most commonly enhanced in an issue of preference share? a. The right to vote for the board of directors.
What is the benefit of stock split?
Stock splits can improve trading liquidity and make the stock seem more affordable. In a stock split the number of outstanding shares increases and the price per share decreases proportionately, while the market capitalization and the value of the company do not change.
Is it good for a stock to split?
One side says a stock split is a good buying indicator, signaling the company's share price is increasing and doing well. While this may be true, a stock split simply has no effect on the fundamental value of the stock and poses no real advantage to investors.
What is a stock split quizlet?
Traditional stock split. A split where the value of a share and the number of shares are changed in such a proportional way that the value decreases as the number of shares increases, while the market cap remains the same.
Is a stockholder's equity always recorded?
Is always recorded as part of stockholders' equity. Can have features of both liabilities and stockholders' equity. Is not included in either liabilities or stockholders' equity. Can have features of both liabilities and stockholders' equity.
Is treasury stock an asset?
Treasury stock is recorded as an asset by the acquiring company. Only losses on the sale of treasury stock are recorded on the income statement. Stockholders' equity is reduced when treasury stock is purchased. Gains and losses on the sale of treasury stock are recorded on the income statement.