(Learning Objective 1, 2, 5: Explaining the features of a corporation’s stock) Reinhart Corporation is conducting a special meeting of its board of directors to address some concerns raised by the stockholders. Stockholders have submitted the following questions.
Answer each question.
1. Why are common stock and retained earnings shown separately in the shareholders’ equity section of the balance sheet?
2. Lou Harris, a Reinhart shareholder, proposes to give some land she owns to the company in exchange for shares of the company stock. How should Reinhart Corporation determine the number of shares of our stock to issue for the land?
3. Preferred shares generally are preferred with respect to dividends and in the event of our liquidation. Why would investors buy our common stock when preferred stock is available?
4. What does the redemption value of our preferred stock require us to do?
5. One of our stockholders owns 100 shares of Reinhart stock and someone has offered to buy her shares for their book value. Our stockholder asks us the formula for computing the book value of her stock.