1. From the standpoint of financial expediency, from which sources of surplus (Syllabus, p. 52) may dividends be declared?

2. If the Midwest Refining Company (p. 766) were to write up its "property, leases and contracts"by $10,000,000, would the amount thus added to the assets be income subject to taxation under the Federal Income Tax?

3. What, probably, is the purpose of each of the "funds"mentioned on page 624? Are these so-called "funds"reserves, or funds, as those words are used in American practice?

4. What are all the advantages of a large surplus (a) to the corporation; (b) to the stockholder?

5. Why are regular dividends desirable from the standpoint of (a) the stockholder and (b) the corporation?

6. Prove that the interest on a 6 per cent bond for fifteen years is worth more than the rest of the bond - principal and interest - no matter how long the bond has to run.

7. A corporation presents to its directors at the end of its first fiscal year the following condensed statement:

Balance Sheet

Assets

Cash ................

$33,600

Accounts Receivable..

57,000

Inventories ....

50,400

Plants and Machinery.

93,000

Patent Rights .....

30,000

$264,000

Liabilities

Accounts Payable ....

$67,200

Notes Payable ....

12,000

Accrued Wages ....

4,800

Capital Stock ....

120,000

Surplus .......

60,000

$264,000

Income and Expenditures Statements

Gross Sales ...................

$560,000

Deductions from Sales ...........

22,800

$537,200

Operating Expenses ...........

335,100

Manufacturing Profit ..........................

$202,100

Selling Expenses ..................

105,000

Gross Profit ........................

$97,100

Administrative Expenses .....................

36,000

Gross Income ......................

$61,100

Taxes and other deductions .......

1,100

Net Surplus for Year ............

$60,000

The three directors of the company are not agreed as to the correct dividend policy for the year: one votes to pay out a 20 per cent cash dividend, another is in favor of a 40 per cent stock dividend, and the third believes the company should pay no dividend at all. What would you favor?

8. Would your answer in the above problem be changed if the company intended to expand its business through the sale of $50,000 capital stock to outsiders at par?

9. Under what circumstances would you advise the payment of a dividend?

10. The balance sheet of the X Company may be simplified as follows:

Land................

$120,000

Building and Machinery

130,000

Inventories...........

220,000

Receivables...........

110,000

Cash .......

10,000

Profit and Loss.......

50,000

$640,000

Capital Stock .....

$500,000

Debts .......

140,000

$640,000

The company is three years old, has never declared a dividend, but has made, through war orders, a profit for the year of $40,000. It is anxious to pay a dividend. How may it do so?

11. On March 1, Company A declares a dividend as of March 15, payable April 15. X was the owner of a certificate for 100 shares of stock on February 28. On March 5 he sold the certificate to Y, who sold the certificate to Z on April 1. Who is entitled to the dividend? Would your answer be changed if these transactions had been made through the New York Stock Exchange? (pp. 126-49.)

12. What is meant by the item "Dividends unclaimed and payable"on p. 760? How could the company give this indebtedness priority over the item listed above it: "Int. on deb. bds."?

13. A died in 1910, leaving $2,000,000 stock in corporation M to X, in trust for L for life, remainder to Z. Company M pays regular dividends of 6 per cent, but in 1916 distributes a 50 per cent dividend. What should X do with the money received? The important facts from the balance sheets for the two years are as follows:

1910

1916

Assets ........

$25,000,000

$32,000,000

Stock ..............

12,000,000

12,000,000

Debts..............

10,000,000

13,000,000

Surplus ............

3,000,000

7,000,000

14. This is a summarizing and review problem:

(1) Enumerate very briefly and concisely all the purposes for which a corporation may need funds.

(2) Enumerate very briefly all the sources from which funds can be derived.

(3) Enumerate very briefly the agencies through which each of the sources mentioned in the previous problem can be reached.