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Explain the term residual claim to income for shareholders

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Please explain what is meant by the term "residual claim to income", as applied to common stockholders.

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Solution Summary

The 321 word solution explains the concept of residual claim to income in two distinct situations within the corporate world. Both include adequate explanations to demonstrate the effect to common shareholders of a corporation.

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The term 'residual' in any context refers to that which is leftover, and it certainly applies to the position of common stockholders when it comes time for distributions.

Common stockholders are entitled to residual income or residual net assets after all the secured and priority claims are paid. There are two situations where common stockholders might be entitled to a residual:

First, in bankruptcy, common stockholders are at the bottom of the heap in the ordering of distributions. Each state has laws about ...

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