PLEASE PROVIDE A COMPLETE ANSWER Wallace Computer Company is a small, closely he

Question

PLEASE PROVIDE A COMPLETE ANSWER

Wallace Computer Company is a small, closely held corporation. Eighty percent of the stock is held by Derek Wallace, president. Of the remainder, 10% is held by members of his family and 10% by Kathy Baker, a former officer who is now retired. The balance sheet of the company at June 30, 2014, was substantially as shown below.

Additional authorized common stock of $300,000 par value had never been issued. To strengthen the cash position of the company, Wallace issued common stock with a par value of $100,000 to himself at par for cash. At the next stockholders’ meeting, Baker objected and claimed that her interests had been injured.

Which stockholder’s right was ignored in the issue of shares to Derek Wallace?

How may the damage to Baker’s interests be repaired most simply?

Assets Liabilities and Stockholders’ Equity Cash $ 22,000                 Current liabilities $ 50,000 Other 450,000                   Common stock 250,000 $ 472,000                Retained earnings 172,000 $ 472,000

Explanation / Answer

a)

The Preemptive Right: To share proportionately in any new issues of stock of the same class.

b)

Baker’s interests can be repaired simply by issuing Ms. Bakershare equal to 50% of her present holdings of $25,000 at PV or possibly just issuing stock with a PV of $12,500. Since Wallace bought an additional $100,00 PV stock which is about 50% of his current ownership of $200,000. Any of the other holders should be offered the same right to purchase shares to 50% of their current ownership of the company. This is the most simple way to solve any damage occurred during Wallace’s actions.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.