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PART-F Portus Limiteds contributed share capital as of 1st January 2020 was $400,000, with 400,000 shares on issue. On 31st

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Answer #1

(a) Stock/share dividends have no effect on total amount of stockholder's equity. They just decrease the retained earnings and increase paid in capital with the same amount.

Total value of contributed share capital = $400,000

(b) A stock split is a declaration in which company divides its existing shares into multiple shares. Though the number of share increases, the value of share capital remains the same after share split. The split do not add to real value. When a stock split is declared, the price of shares adjusts in the market automatically. But, the company's overall value i.e. the market capitalization remains the same.

Total value of contributed share capital = $400,000

(c) Major difference in the rights of shareholders between preference shares and ordinary shares are:

  • Ordinary shares gives holders the right to vote at meetings while preference shares come with no voting rights.
  • Preference shareholders get a priority in case of liquidation of the company over the ordinary shareholders.
  • Dividends for ordinary shares may be irregular and indefinite, whereas preference shares will receive a fixed dividend.
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