Chapter 13 Case Studies:
E-Mail your conclusions for case studies 1 & 2 to scott.muckey@k12.sd.us
Case 1: Cecil Thomas pays $12,000.00 for 2,000 shares of $5.00 stated-value common stock of Datkins, Inc. A year later, Mr. Thomas sells the 2,000 shares of stock to Sally Gilliam for a total of $14,000.00. Mrs. Gilliam sends a notice to Datkins so that ownership can be changed on the corporation's stock records. An accounting clerk at Datkins is not sure what journal entry should be made so that the business' general ledger will reflect the correct information. What advice would you give the accounting clerk?
Case 2: Spencer, Inc. estimates that with an additional $600,000.00 capital with which to expand the business, an additional $90,000.00 in net income can be earned. The board of directors is considering three alternatives for acquiring the additional capital. (1) Issue 600, 10-year, 10% $1,000.00 face value bonds. (2) Sell 12,000 shares of 10 %, $50.00 par-value preferred stock. (3) Sell 600,000 shares of $1.00 stated-value common stock. The corporation has been paying an annual $.08 per share dividend on common stock. The corporation's average tax rate on net income is 35%. What factors should you advise the corporation to consider before deciding on which alternative to use?