Wallace Corporation is conducting a special meeting of its board of directors to address some concerns raised by the stockholders. Stockholders have submitted the following questions. Answer each question.
1. Why are common stock and retained earnings shown separately in the shareholders’ equity section of the balance sheet?
2. Larry Ramirez, a Wallace shareholder, proposes to transfer some land he owns to the company in exchange for shares of the company stock. How should Wallace Corporation determine the number of shares of our stock to issue for the land?
3. Preferred shares generally are preferred with respect to dividends and in the event of our liquidation. Why would investors buy our common stock when preferred stock is available?
4. What does the redemption value of our preferred stock require us to do?
5. One of our stockholders owns 200 shares of Wallace stock and someone has offered to buy her shares for the company’s book value. Our stockholder asks us the formula for computing the book value of her stock.