Chapter 11

1. Joe, a student, asks your help in understanding some characteristics of a corporation. Explain each of these to Joe.
   • Separate legal existence.
   • Limited liability of stockholders.

2. Your friend G.C. Jones cannot understand how the characteristic of corporate management is both an advantage and a disadvantage. Clarify this problem for G.C.

3. For what reasons might a company like Apple repurchase some of its stock (treasury stock)?

4. What are the principle differences between common stock and preferred stock?

5. Preferred stock may be cumulative. Discuss this feature. Also address how dividends in arrears are presented in the financial statements.

6. What 3 conditions must be met before a cash dividend is paid?

7. The board of directors is considering a stock split or a stock dividend. They understand that total stockholders equity will remain the same under either action. However, they are not sure of the different effects of the two actions on other aspects of stockholders equity. Explain the differences to the directors.

8. Explain the circumstances under which debt financing will increase the return on common stockholders equity.

9. Identify the items that affect retained earnings.