Question

Rush Consulting, Inc. (“Rush”) is a New York corporation that was formed in January 2015. The Rush certificate of incorporation authorizes the issuance of 10,000,000 shares of $.01 par value common stock, 1,000,000 shares of cumulative $5 no‐par preferred stock, and 2,000,000 shares of $100 par value 10% non‐cumulative preferred stock.  The Rush certificate of incorporation provides for preemptive rights for common stockholders.  It is now June 2019, and Rush has the following shareholders:  Geddy owns 3 million shares, Alex owns 2 million shares and Neil owns 1 million shares.  There are no other shareholders.  Rush also has 500,000 shares of treasury stock.

It is now June 2019, and Rush has the following shareholders: Geddy owns 3 million shares, Alex owns 2 million shares and Neil owns 1 million shares. There are no other shareholders. Rush also has 500,000 shares of treasury stock. It is now January 2020, and 8 million shares of the common stock are issued and outstanding. No preferred stock has been issued and there are no treasury shares. The corporation has $1 million legally available in surplus for dividends. Assuming no insolvency issues, Rush may issue a 10% stock dividend. True or False? explain

Answer 1

True, since the company doesn't have any preferred stock and treasury stock. The total stock is $8 million , 10% dividend on which is $0.8 million, which is less than the amount available for distribution for dividend.