Answer:
a.
Prepare a statement showing computation of stockholders equity section of balance sheet:
Stockholders' equity is main portion of the balance sheet. It represents the amounts that are collected from investors by issuing stocks (Common and preferred) and retained earnings. Common stock, preferred stock, additional capital in excess of par, retained earnings, and treasury stock are some of the items included in this section.
Notes:
• Issued common stock for cash of 400,000 shares at $1
• Preferred stock 10,000 shares at $100 per shares.
• Additional paid-in stock for common stock is $5,600,000 (400,000 at the rate of $14 ($15-$1)
• Net loss during the year is $1,250,000
b.
Disclose dividends in arrears ate the end of 2015:
• Corporations paid in cash periodically called dividends
• Dividends cannot be more than the retained earnings of the corporations
• Preferred stock holder paid the dividends before the common stockholder each year.
• Due to loss in 2015 there is no dividends declared in 2015
• Dividend is declared only in case of profit earned by the corporation or otherwise.
• From year 2010 to 2014 total dividends will be $1,600,000 ($320,000 X 5 years)
• Corporation paid the dividends only when cash is available with the corporations.
• It is not a fixed charge.
• Here, $320,000 is the dividends in 2015 (400,000 X $0.80)
• Dividends in arrears are deducted from the stockholder equity to find the book value of shares.
c.
State the reason for dividends in arrears to be shown as a liability:
Dividend is not a fixed charge. It reduces the equity of common stockholder and fall in the book value per share. If there are any arrears for the past year, it will be considered as liability since company should be paid (met the obligation) in future.
Answer:
a. Owners' liability. Sole proprietors are personally liable for the debts of the business. A corporation, however, is responsible for its own debts; the stockholders of a corporation are not personally liable for the debts of the business entity. Thus, the amount of money that a stockholder might lose by investing in a corporation is limited to the amount of his or her investment.
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b. Transferability of ownership interest. A sole proprietor generally must sell his or her entire interest in the business. This creates a new business owned by a new sole proprietor. Shares of stock in a corporation are freely transferable.
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c. Continuity of existence. A sole proprietorship is terminated upon sale or abandonment by the owner and upon that person's death or incapacitation. Corporations continue in existence regardless of changes in ownership.
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d. Federal taxation on income. A corporation is subject to federal income tax on its income, and stockholders are also subject to a personal income tax on any amounts they receive as dividends. A sole proprietorship is not a taxable entity, but the owner must pay personal taxes on the income earned by the business, whether or not it is actually withdrawn by the owner.
Answer:
The large corporations are often said to be publicly owned because the capital stock of most large corporations can be traded (bought and sold) through organized securities exchanges. As these shares are available for purchase by the general public, these large corporations are said to be publicly owned.
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