Discussion and 2 replies

A stockbroker advises a client to buy preferred stock, saying “With that type of stock, you will never have to worry about losing the dividends.” Is the broker right?

Post by classmate 1

Question

 

A Corporation reacquires 60,000 shares of its own $10 par common stock for 3,000,000 recording it at cost

A)What effect does this transaction have on revenue or expense for the period

B) What effect does it have on stockholders equity?

Answer 

 

A) The transaction does not generate revenue or expense so there would be no effect on ether

B) Reacquiring the stock reduces the stockholders equity by $3,000,000

Post by classmate 2

 Question

An owner of 2500 shares of Simmons Company common stock receives a stock dividend of 50 shares.

a. What is the effect of the stock dividend on the stockholder's proportionate interest (equity) in the corporation?

 

b. How does the total equity of 2550 shares compare with the total equity of 2500 shares before the stock dividend?

Answer

 

An owner of 2500 shares of Simmons Company common stock receives a stock dividend of 50 shares.

a. What is the effect of the stock dividend on the stockholder's proportionate interest (equity) in the corporation?

The  stockholders equity will be 2% of the shares that the stockholder  already owns.  This money is earned on the current stock that the  stockholder owns.  Basically, a stock dividend affects only the equity.   In this situation, stock dividends do not change a stockholder's  proportionate interest (equity).

b. How does the total equity of 2550 shares compare with the total equity of 2500 shares before the stock dividend?

The  total equity of 2550 is more than the 2500.  With more shares, you earn  more in the long run.  By earning dividend as shares.  If I understand  correctly, I believe that in this case, stock dividends do effect the  total equity of a stockholder, but not the total equity of the  corporation.