The board of directors of Freestroke Swim Centers, Inc., is meeting to address the concerns of stockholders. Stockholders have submitted the following questions for discussion at the board meeting. Answer each question.

1. Why did Freestroke organize as a corporation if a corporation must pay an additional layer of income tax? 

2. How is preferred stock similar to common stock? How is preferred stock similar to debt? 

3. Freestroke purchased treasury stock for $50,000 and a year later sold it for $65,000. Explain to the stockholders whether the $15,000 excess is profit to be reported on the company’s income statement. Explain your answer. 

4. Would Freestroke investors prefer to receive cash dividends or stock dividends? Explain your reasoning.