MGAB02H3 Lecture Notes - Lecture 7: Common Stock, Share Capital, Retained Earnings

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oliveantelope729

9 Aug 2016

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For common share holders they have voting rights: they get the residual interest because they have ownership, entitled to declared dividends. Ownership goes to those with voting rights. Preferred shareholders have a preference over common shareholders on declared dividends: do not usually have voting rights. Can convert to common shares after a certain period of times: cumulative. These shareholders are entitled to dividend every year if the company declares the dividend. If dividends are not declared in a particular year, dividends will be kept in arrears. In the future, when the dividends are declared, all dividends in arrears must be paid first: participative. These preferred shareholders will participate with the common shareholders on the upside of the dividend distribution: redeemable. At the option of the issuer, the issuer can redeem the preferred shares at their discretion: retractable. At the option of the shareholder, the shareholder can force the company to buy back their shares.

Related Questions

QUESTION 10

Short-term bond yields are generally ______ than long-term bond yields, whereas long-term bond prices are generally ________ than short-term bond prices.

		more volatile, less volatile
		less volatile, more volatile
		less volatile, less volatile
		more volatile, more volatile

2.5 points

QUESTION 11

Common stockholders have a residual claim to income, in other words they are last in line.

True

False

2.5 points

QUESTION 12

Stock classes are similar to bond ratings in that they are used to rank the performance of different corporations' stock.

True

False

2.5 points

QUESTION 13

The particular type of shareholder voting used has become less important with the influence of takeovers, leveraged buy-outs, and other challenges to management control.

True

False

2.5 points

QUESTION 14

Which of the following is not a true statement?

Common stockholders have a residual claim to income.

Bondholders may force a corporation into bankruptcy for failure to make interest payments.

Common stockholders are legally entitled to some dividend.

A minority interest can still elect members to the Board of Directors under cumulative voting even though someone else owns 51% of the stock.

2.5 points

QUESTION 15

The purpose of cumulative voting is

to maintain majority control of the board of directors.

to allow minority stockholders the possibility of a voice on the board of directors.

to obstruct unfriendly mergers and takeover efforts.

to prevent the dilution of common stock through preemptive rights offerings.

2.5 points

QUESTION 16

A rights offer made to existing shareholders with the sole purpose of making it more difficult for another firm to acquire the company is called

a preemptive right.

a poison pill.

ex-rights.

rights-on.

2.5 points

QUESTION 17

A possible advantage to a rights offering is that

current shareholders are protected against dilution.

the firm has a built-in market of knowledgeable investors.

distribution costs are lower than a public offering.

All of these options

2.5 points

QUESTION 18

Which of the following actions will provide the shareholders with the most total wealth when a company conducts a rights offering?

Exercise the rights for new shares.

Sell the rights themselves and hold existing shares and cash.

Exercise the rights and sell the shares.

None of these options

2.5 points

QUESTION 19

The subscription rate of a new offering is generally _______ than the rights-on price and _______ than the ex-rights price.

higher; higher

higher; lower

lower; higher

lower; lower

crimsonbeaver701

1) Dividends in arrears that must be paid to the preferred stockholders before payment of dividends to common stockholders are

Select one:

a. convertible

b. cumulative

c. noncumulative

d. participating

2) Which of the following is usually a right of a preferred stockholder?

Select one:

a. Right to sue company in bankruptcy proceedings if promised preferred dividends are not paid.

b. Right to receive dividend payments before any dividends are paid to common stockholders.

c. Right to convert shares of common stock on demand.

d. Preemptive right to participate in the issuance of new common shares.

3) Another term sometimes applied to common stockholder is a

Select one:

a. residual owner of the firm.

b. reciprocal owner of the firm.

c. net owner of the firm.

d. fundamental or basic owner of the firm.

4) Because equity holders are the last to receive any distributions of assets as a result of bankruptcy proceedings, common stockholders expect

Select one:

a. warrants to be attached to the stocks as a sweetener.

b. greater compensation in the form of dividends and/or rising stock prices.

c. fixed dividends payments.

d. all profits to be paid out in dividends.

5) Preferred stock is valued as if it were a

Select one:

a. fixed-income obligation.

b. bond.

c. common stock.

d. perpetuity.

6) Economically rational buyers and sellers use their assessment of an asset

ultramarineelk44

Analyzing and Interpreting Equity Accounts and Comprehensive Income
Following is the shareholdersâ equity section of the 2013 balance sheet for Procter & Gamble Company and its statement of shareholdersâ equity.

June 30 (In millions, except per share amounts)	2013
Shareholders' Equity
Convertible Class A preferred stock, stated value $ 1 per share
(600 shares authorized)	$ 1,137
Non-voting Class B preferred stock, stated value $ 1 per share
(200 shares authorized)	--
Common stock, stated value $ 1 per share
(10,000 shares authorized; shares issued: 2013-4,009.2)	4,009
Additional paid-in capital	63,538
Reserve for ESOP debt retirement	(1,352)
Accumulated other comprehensive income/(loss)	(7,499)
Treasure stock, at cost (shares held: 2013-1,266.9)	(71,966)
Retained earnings	80,197
Noncontrolling interest	645
Total shareholders' equity	$ 68,709

Consolidated Statement of Shareholders' Equity
Dollars in millions; Shares in thousands	Common Shares Outstanding	Common Stock	Preferred Stock	Additional Paid-in Capital	Reserve for ESOP Debt Retirement	Accumulated Other Comprehensive Income (Loss)	Treasury Stock	Retained Earnings	Noncontrolling Interest	Total
Balance June 30, 2012	$ 2,748,033	$ 4,008	$ 1,195	$ 63,181	$ (1,357)	$ (9,333)	$ (69,604)	$ 75,349	$ 596	$ 64,035
Net earnings								11,312	90	11,402
Other comprehensive income						1,834				1,834
Dividends to shareholders:
Common								(6,275)		(6,275)
Preferred, net of tax benefits								(244)		(244)
Treasury purchases	(84,234)						(5,986)			(5,986)
Employee plan issuances	70,923	1		352			3,573			3,926
Preferred stock conversions	7,605		(58)	7			51			â
ESOP debt impacts					5			55		60
Noncontrolling interest, net				(2)					(41)	(43)
Balance June 30, 2013	$ 2,742,327	$ 4,009	$ 1,137	$ 63,538	$ (1,352)	$ (7,499)	$ (71,966)	$ 80,197	$ 645	$ 68,709

(a) What does the term convertible (in reference to the company's Class A preferred stock) mean?

Convertible means the holder of the security has an obligation to convert (exchange) the security into another security.

Convertible means the holder of the security has an option to surrender the security and to receive cash at any time.

Convertible means the holder of the security has an option to convert (exchange) the security into another security.

Convertible means the holder of the security has an option to sell the security at any time.

(b) How many shares of common stock did Procter & Gamble issue when convertible Class A preferred stock was converted during fiscal 2013?

Answer

thousand shares

(c) For "employee plan issuances," at what average price was the common stock issued as of year-end 2013? (Round your answer to two decimal places.)

$Answer

(d) What is the accumulated other comprehensive income account?

The accumulated other comprehensive income account reflects the cumulative profit recognized by the company less the cumulative dividends that have been paid to shareholders.

The accumulated other comprehensive income account reflects the cumulative change in net assets (defined as assets less liabilities) for transactions other than net income transactions and transactions with shareholders.

The accumulated other comprehensive income account reflects the cumulative profit on transactions with shareholders.

The accumulated other comprehensive income account reflects the cumulative amount by which the company's common stock has increased or decreased since issuance.

(e) What cash dividends did Procter & Gamble pay in 2013 for each class of stock?

Common dividends =Answer

($ millions)
Preferred dividends =Answer($ millions)

redwhale352

MGAB02H3 Lecture Notes - Lecture 7: Common Stock, Share Capital, Retained Earnings

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