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