1. Provide at least three characteristics of a corporation (in your own words).
ID: 2381703 • Letter: 1
Question
1. Provide at least three characteristics of a corporation (in your own words).
2. The date on which a cash dividend becomes a binding legal obligation is known as what date?
3. A corporation has 40,000 shares of $25 par value stock outstanding. If the corporation issues a 3-for-1 stock split, the number of shares outstanding after the split will be
4. Should a corporation be in a position to liquidate, detail the order of payment to debt holders and equity holders. Consider that this corporation has issued common stock, bonds, and preferred stock.
5. When is it appropriate to use the equity method of recording versus the cost method when in receipt of cash dividends from an investment?
6. What is the overall purpose to the Statement of Cash Flows?
7. When is it appropriate for a business to use the direct method of calculating cash flows over the indirect method?
Explanation / Answer
1.) It is a separate entity/person than the people who own it. It can't run for office or vote. And it exists indefinitely.
2.) Declaration date.
3.) 120,000 shares
4.) Bonds, Preferred stock, Common Stock in that order. Debt holders always have priority over equity stakes.
5.) You use equity method when you own 30% or more. If you own 20% or less, use the cost method.
6.) It is to identify the net cash flows, and whether additional financing is required. It can also be utilized to identify fraudulent activity.
7.) When presenting data to potential investors and creditors, as the direct method of deriving cash flows is far simpler to read and process.
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