Case 2. Answering the following questions will enhance your understanding of the capital stock of corporations. Consider each question independently of the others.
Requirements
1. Why are capital stock and retained earnings shown separately in the shareholders’ equity section of the balance sheet?
2. Preferred shares have advantages with respect to dividends and corporate liquidation. Why would investors buy common stock when preferred stock is available?
3. Manuel Chavez, major shareholder of MC, Inc., proposes to sell some land he owns to the company for common shares in MC. What problem does MC face in recording the transaction?
4. If you owned 100 shares of stock in Coca-Cola Company and someone offered to buy the stock for its book value, would you accept the offer? Why or why not?
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