Which is the main difference between a stock split and a stock dividend quizlet?

Candela Company has retained earnings of $500,000, common stock of $400,000, and total common stockholders' equity of $1,200,000. It has 200,000 shares of $2 par value common stock outstanding which is currently selling for $5 per share. If Candela Company declares a 2-for-1 stock split on its common stock, which of the following will occur?

A :
Retained earnings will decrease by $1,000,000.

B :
There will be no effect on total common stockholders' equity.

C :
Net income will increase by $1,000,000.

D :
Total paid-in capital will increase by $1,000,000.

Clayworks Corporation issued 300,000 shares of $5 par value common stock for $26 per share. During that year, the corporation sustained a net loss of $80,000. The year-end balance sheet would show

A :
total paid-in capital of $6,300,000.

B :
common stock of $7,800,000.

C :
common stock of $1,500,000.

D :
total paid-in capital of $7,000,000.

Hadley Corporation issued 200,000 shares of $5 par value common stock for $25 per share. During that year, the corporation sustained a net loss of $40,000. The year-end balance sheet would show

A :
total paid-in capital of $4,600,000.

B :
common stock of $5,000,000.

C :
total paid-in capital of $5,400,000.

D :
common stock of $1,000,000.

One major difference between a partnership and a corporation is that

A
in a partnership, the life of the company is perpetual, but in a corporation, the life of the company is limited to a specific number of years.

B
in a partnership, the transfer of ownership interest requires the consent of only the transferring partner, but in a corporation, the transfer of ownership interest requires the consent of all the owners.

C
in a partnership, the company is managed by a board of directors, but in a corporation, the company is managed directly by the owners.

D
in a partnership, the acts of the owners bind the partnership, but in a corporation, the acts of the owners do not bind the partnership unless they are also an agent of the corporation.

In 2015, First Inc. issued 12,000 shares of 8%, $60 par-value preferred stock with a cumulative-dividend feature. In 2015, the firm paid total dividends of $30,000, and in 2016, it paid total dividends of $45,000. If First declares $180,000 in total dividends for 2017, what amount will be available for its common stockholders?

Preferred vs. Common Stock: An Overview

There are many differences between preferred and common stock. The main difference is that preferred stock usually does not give shareholders voting rights, while common stock does, usually at one vote per share owned. Many investors know more about common stock than they do about preferred stock.

Both types of stock represent a piece of ownership in a company, and both are tools investors can use to try to profit from the future successes of the business.

Key Takeaways

• The main difference between preferred and common stock is that preferred stock gives no voting rights to shareholders while common stock does.
• Preferred shareholders have priority over a company's income, meaning they are paid dividends before common shareholders.
• Common stockholders are last in line when it comes to company assets, which means they will be paid out after creditors, bondholders, and preferred shareholders.

One main difference from common stock is that preferred stock comes with no voting rights. So when it comes time for a company to elect a board of directors or vote on any form of corporate policy, preferred shareholders have no voice in the future of the company. In fact, preferred stock functions similarly to bonds since with preferred shares, investors are usually guaranteed a fixed dividend in perpetuity.

The dividend yield of a preferred stock is calculated as the dollar amount of a dividend divided by the price of the stock. This is often based on the par value before a preferred stock is offered. It's commonly calculated as a percentage of the current market price after it begins trading. This is different from common stock, which has variable dividends that are declared by the board of directors and never guaranteed. In fact, many companies do not pay out dividends to common stock at all.

Like bonds, preferred shares also have a par value which is affected by interest rates. When interest rates rise, the value of the preferred stock declines, and vice versa. With common stocks, however, the value of shares is regulated by demand and supply of the market participants.

In a liquidation, preferred stockholders have a greater claim to a company's assets and earnings. This is true during the company's good times when the company has excess cash and decides to distribute money to investors through dividends. The dividends for this type of stock are usually higher than those issued for common stock. Preferred stock also gets priority over common stock, so if a company misses a dividend payment, it must first pay any arrears to preferred shareholders before paying out common shareholders.

Unlike common shares, preferreds also have a callability feature which gives the issuer the right to redeem the shares from the market after a predetermined time. Investors who buy preferred shares have a real opportunity for these shares to be called back at a redemption rate representing a significant premium over their purchase price. The market for preferred shares often anticipates callbacks and prices may be bid up accordingly.

What Is the Difference Between Preferred Stock and Common Stock?

Common Stock

Common stock represents shares of ownership in a corporation and the type of stock in which most people invest. When people talk about stocks, they are usually referring to common stock. In fact, the great majority of stock is issued in this form.

Common shares represent a claim on profits (dividends) and confer voting rights. Investors most often get one vote per share owned to elect board members who oversee the major decisions made by management. Stockholders thus have the ability to exercise control over corporate policy and management issues compared to preferred shareholders.

Common stock tends to outperform bonds and preferred shares. It is also the type of stock that provides the biggest potential for long-term gains. If a company does well, the value of a common stock can go up. But keep in mind, if the company does poorly, the stock's value will also go down.

The first common stock ever issued was by the Dutch East India Company in 1602.

Preferred shares can be converted to a fixed number of common shares, but common shares don't have this benefit.

When it comes to a company's dividends, the company's board of directors will decide whether or not to pay out a dividend to common stockholders. If a company misses a dividend, the common stockholder gets bumped back for a preferred stockholder, meaning paying the latter is a higher priority for the company.

The claim over a company's income and earnings is most important during times of insolvency. Common stockholders are last in line for the company's assets. This means that when the company must liquidate and pay all creditors and bondholders, common stockholders will not receive any money until after the preferred shareholders are paid out.

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