Discussing Various Aspects of Accounting
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1. As an investor, would you prefer a stock dividend, cash dividend or stock split? Why? How do each of these impact a company's financial statement? What are some benefits of a stock split for a company? What are some benefits for an investor? Why would a company choose one over the other?
2. Should an organization issue common stock, preferred stock, or bonds to raise capital? Why? As an investor, how would you prefer to see a company raise capital? Why? As a corporation, would you rather issue preferred or common stock? Why?
3. Why do companies offer stock options? Should stock option compensation be included as an expense when calculating an organization's net income? Why or why not? If so, how should the amount of expense be calculated?
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This solution discusses various aspects of accounting.
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1. As an investor I would prefer a stock dividend. Unlike cash dividend, stock dividend is not taxable immediately. Moreover, unlike stock split that usually results to the proportionate decrease in the company's stock price, stock price after stock dividend usually does not decrease proportionately to the percentage of stock dividend issued. Cash dividends reduce retained earnings (stockholders equity) and cash while a stock dividend reduces retained earnings, but not the total stockholders' equity. Stock split does not reduce retained earnings. In a stock split, the stock price of the company reduces proportionately; hence ...
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