Accounting Discussion 5

Discussion Question #1.  Managing your Writing

 The investments committee of your church has come to you for advice. One of the stocks held by the church has paid cash dividends for years. This year, the company issued a  stock dividend, so that the church received additional shares rather than cash. The committee is concerned about whether this stock dividend is really worth anything. One committee member argues the stock dividend is as good as cash; another argues that the dividend is worthless.

 

Write a brief report to the committee explaining the difference between a cash dividend and a stock dividend. Evaluate the value of the stock dividend compared with the cash dividend the church has received in prior years.

 

Discussion Question #2.  Ethics Case

 

Richard Petri is the chief financial officer at Computer Electronics, Inc. In this capacity, he attends all monthly board of directors meetings. A special meeting of the board of directors was called to discuss substantially increasing the amount of cash dividends paid to stockholders this year. The board voted unanimously to increase the dividend. Later that night, Richard called his uncle and hinted around that Computer Electronics, Inc., was going to make its stockholders very happy. His uncle didn’t own any stock in Computer Electronics but went out and purchased shares the next day.

 

1.  Did Richard do anything unethical? Would your answer be different if Richard specifically stated that the dividends on Computer Electronics, Inc., were being increased substantially?

 

2.  What should Richard’s boss do if he finds out what Richard said to his uncle?

 

3.  Write a short paragraph explaining the difference between cash dividends and stock dividends.