1. Three individuals are planning to form a new business. What are the five major types of entities that they can use to operate their business?
2. Assume that you are the controller of a corporation. Some members of the board of directors have asked you how the firm can have a large balance in the Retained Earnings account but no cash with which to pay dividends. Explain.
3. A corporation’s balance sheet shows Retained Earnings Appropriated for Plant Expansion with a balance of $4,000,000. Does this mean that the corporation has set aside $4,000,000 in cash to expand its plant? Why would management want to establish such an account?
4. Trump Corporation’s $50 par-value stock has a market price of $250 per share. As a result of the high price per share, finding buyers for stock that existing shareholders wish to sell has become difficult. Suggest a way for management to resolve this problem.
5. Why would the management of a corporation consider using corporate funds to purchase the firms’ own outstanding stock?
6. The president of a corporation suggests to the controller that one way to convert retained earnings into permanent capital is to have a stock split. What explanation should the controller give the president?