The authorized share capital of the Alfred Cake Company is 100,000 shares. The equity is

The authorized share capital of the Alfred Cake Company is 100,000 shares. The equity is currently shown in the company’s books as follows:

Common stock ($2 par value)	$	70,000
Additional paid-in capital		20,000
Retained earnings		40,000
Common equity		130,000
Treasury stock (5,000 shares)		14,000
Net common equity	$	116,000

a.	Suppose that the company issues 20,000 shares at $4 a share. Construct the revised equity accounts.

Common stock	$
Additional paid-in capital
Retained earnings
Common equity
Treasury stock
Net common equity	$

b.	What would happen to the company’s books if instead it bought back 2,000 shares at $4 per share? Construct the revised equity accounts.

Common stock	$
Additional paid-in capital
Retained earnings
Common equity
Treasury stock
Net common equity	$

Explanation:

a.

The issue of 20,000 shares would increase the par value of common stock by:

20,000 shares × $2 = $40,000

Additional paid-in capital increases by:

20,000 shares × $2 per share = $40,000

b.

If the company bought back 2,000 shares, Treasury stock would increase by the amount spent on the stock: $8,000.

If there are 10 directors to be elected and a shareholder owns 250 shares, calculate the maximum number of votes that he or she can cast for a favorite candidate under

	Maximum Number of Votes
a. Majority voting
b. Cumulative voting

Explanation:

a.

Under majority voting, the shareholder can cast a maximum of 250 votes for a favorite candidate.

b.

Under cumulative voting with 10 candidates, the maximum number of votes a shareholder can cast for a favorite candidate is 10 × 250 = 2,500.

The shareholders of the Pickwick Paper Company need to elect five directors. There are 120,000 shares outstanding.

a.	How many shares do you need to own to ensure that you can elect at least one director if the company has majority voting?

Majority voting

b.	How many shares do you need to own to ensure that you can elect at least one director if the company has cumulative voting?

Cumulative voting

Explanation:

a.

If the company has majority voting, each candidate is voted on in a separate election. To ensure that your candidate is elected, you need to own at least half the shares, or 60,000 shares (or 60,001 shares, in order to ensure a strict majority of the votes).

b.

If the company has cumulative voting, all candidates are voted on at once, and the number of votes cast is 5 × 120,000 = 600,000 votes.