【正文】 m. As pointed out in the text, everyone is better off with repurchases than with dividends. Repurchases allow those who desire cash to obtain it at lower tax cost than if it were received as a dividend and protects those who do not want cash from receiving a dividend, paying taxes, and having to reinvest the after tax proceeds from the dividend. Further, no shareholder is forced to sell shares back to the pany.1027 The notion of gains or losses in the ine statement that arise from transactions in the pany’s own stock is problematic for two reasons. First, it suggests that the pany is in the business of buying and selling its own stock. This is false. The pany should never seek to make gains or losses in transactions with its shareholders. So if it is not an activity that is part of the ongoing profitmaking intention of the pany, it should not be shown in the ine statement. Moreover, panies announce their intentions to buy shares of their stock. It is basically a transaction that is an alternative to issuing dividends. If the goal is to facilitate stockholders in their desires to enhance their cash positions without mitting to cash dividends every quarter going forward, it is not a source of operating gains and losses.1028 Your friend is onto something. Par value and the related concept of stated value both have some legal significance in various states. However, the truth is that the number of states and individual panies for whom it matters is small. For practical purposes, this text would probably not cover the topic if it were not so mon in published financial statements.1029 Strictly speaking, this plan does not make sense. If a stock is split or a large stock dividend is issued (more than 25%), the price per share should usually decline in proportion with the new issue. The pany has no more resources than it had before and if each of our shares represents a smaller percentage of ownership, we should expect the value of a share to drop proportionately. However, practically speaking, over the recent past, this has been a reasonably successful strategy. It is hard to explain why. Perhaps it suggests that management’s decision provides new information. If management did not expect things to keep going well, they would not undertake this step. Thus, the act of issuing a split or dividend says, “I am rather sure things will keep going well, as they have been.” 1030 (5 min.) There were 1,750,000 shares issued and outstanding, and 1,000,000 unissued shares: Issued and outstanding: 2,000,000 – 250,000 = 1,750,000 Unissued: 3,000,000 – 2,000,000 = 1,000,000 Summary (not required) Number of Shares Authorized 3,000,000 Unissued (1,000,000) Issued 2,000,000 Deduct: Shares held in treasury (250,000) Issued and outstanding 1,750,0001031 (5 min.) (Amounts in millions.) Issued and outstanding: 2,097 – 758 = 1,339 shares Unissued: 4,688 – 2,097 = 2,591 shares Summary (not required): (in millions) Number of Shares Authorized 4,688 Unissued (2,591) Issued 2,097 Deduct: Shares held in treasury (758) Issued and outstanding 1,3391032 (20 min.) See Exhibit 1032 on the following page.419Chapter 10 Stockholders’ EquityEXHIBIT 1032Liquidation of Claims Under Various Alternatives(In Thousands) Total Cash Proceeds to be Distributed Account Balances $1,400 $1,100 $800 $600 $400 $200Accounts payable $ 300 $ 300 $ 300 $300 $300 $240* $120*Unsubordinated debentures 200 200 200 200 200 160* 80*Subordinated debentures 300 300 300 300 100Preferred stock ($20 par value and $24 liquidating value per share) 100 120 120 Common stock and retained earnings 300 480 180Total liabilities and shareholders’ equity $1,200 Total cash proceeds distributed $1,400 $1,100 $800 $600 $400 $200* Ratio of 60:40 because of claims of $300,000 and $200,000, respectively.1033 (5–10 min.) Amounts are in millions of yen.1. Issue price = 165。s capitalization should produce no accounting gain or loss, but should be recorded as direct adjustments to the stockholders’ equity.1020 The proper amount is the “fair value” of either the issued securities or the ining assets, whichever is more objectively determinable. That same amount should be used by both parties to the exchange.1021 A conversion option allows an investor to participate in a pany’s success by converting to mon shares. Meanwhile, the investor can receive the interest on bonds or dividends on preferred stock, and they do not bear the risk of declines in the price of the mon stock. These options are valuable, so they make the bond or preferred stock more valuable to an investor.1022 A voluntary restriction on dividenddeclaring power may take the form of a reserve for contingencies (also called an appropriation of retained earnings for contingencies). The reserve may be used to restrict dividend payments in order to retain cash for a particular purpose such as plant expansion. Completely involuntary are restrictions under state law that prohibit payment of dividends if retained earnings is negative or debt covenants restrict such payments. 1023 Restrictions on dividenddeclaring power protect the rights of creditors. Such restrictions may be a necessary to borrow money. They may also reduce the interest rate lenders would require. Finally, restrictions inform investors about the intentions of the board.1024 ROE provides information about the returns investors in general get from the cumulative investments they have made in the pany. However, most investors do not buy shares directly from the pany。 Cash 158,611 Common stock 103,517 Capital surplus 55,094 To account for 165。103,517 And (165。62 247。 Common Dividends Net Ine Declared In Arrears Declared 20X1 $(5,000,000) – $5,000,000 – 20X2 (4,