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Chapter 13 Online Journal

REQUIRED: Post comments and reflections related to the chapter here. Also, post 3 questions related to the chapter. One of the questions needs to include a journal entry and/or computation. You may also comment on the chapter opener or the ethics question in the back of each chapter. This assignment is worth 5 points. See course calendar for the due date. You will not be able to see other students’ comments until you post an entry first.

To receive full credit, you need to post comments (2 short paragraphs or more) AND 3 questions per chapter. After you have posted your initial comments, you can answer questions posted by other students.

Below you will find 2 examples that received full credit from my previous class.

Example #1

One student wrote:

I believe after reading the chapter that anyone starting a small business should always start a corporation. Starting a business is a huge risk and corporations are completely separate from its owner. A corporation can be privately held meaning that the owner would be the only stockholder and that stocks are not available to the public. Public held corporations allow hundreds or even thousands of people to purchase stocks in the company. Owning a corporation will allow the company to stay as small, or grow as large as the owner desires. Besides having being taxed twice the owner doesn’t have to worry about losing their house, vehicles, or belongings if the company doesn’t survive.

I work for a construction company my uncle started on his own with simply personal tools and a pickup truck. Almost 30 years later he owns one of the most biggest construction company’s in the state of Michigan. He has began to expand his business in states such as Florida, Illinois, and also does mission work in Africa.

1) Why do most states prohibit the issuance of stock at a discount?

2) How would a company benefit from selling treasury stock for below par value if the account has a zero balance? Wouldn’t this lower retained earnings?

3) How do journal entries that involve treasury accounts with a zero balance affect retained earnings?

Example #2

Another student wrote:

1. Let’s say we distribute a stock dividend with a paid-in capital in excess of par of $5,000. We used the market value compared to our par value to find this figure but we haven’t received any extra capital. If the market value plummeted the next day, does this not alter the underlying meaning of our records?

2. Why do we use market value for small stock dividends (under 25%) but not large dividends? What is the reasoning behind the different approach?

3. When would a company choose to retire stock compared to purchasing treasury stock and leaving it authorized?

It seems corporations are endlessly complicated. If the stockholders are at the top of the “pyramid”, and they vote some way, is the board obligated to follow the vote blindly? All of the corporate officers are supposed to act in the best interest of the stockholders, but what if the voting results from the stockholders are deemed to be detrimental to the company? I wonder how much control Mark Zuckerberg continues to have with a “majority” stock share in Facebook.

Stockholders are essentially very restricted limited liability partners. They have some stake in the company, but will only get a pay out if the company declares a dividend or if they sell their stake in the company. It makes me wonder why “growth” stocks are worth anything on the market when selling it is the only way it’s worth anything. If a company doesn’t pay a dividend, then where does a stock get it’s value from? If the company doesn’t liquidate, there is no tangible value other than someone else wanting to buy it, but why does someone want to buy something with no value? What comes first, the chicken or the egg?

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