If the Bonds Payable account has a balance of $700,000 and the Discount on Bonds Payable account has a balance of $36,000, what is the carrying value of the bonds? Solve What are the basic ownership rights of common stockholders in the absence of restrictive provisions? Solve
The Correct Answer and Explanation is :
Solution 1: Carrying Value of Bonds Payable
The carrying value of bonds payable is calculated as:
[
\text{Carrying Value} = \text{Bonds Payable} – \text{Discount on Bonds Payable}
]
Given:
- Bonds Payable = $700,000
- Discount on Bonds Payable = $36,000
[
\text{Carrying Value} = 700,000 – 36,000 = 664,000
]
Thus, the carrying value of the bonds is $664,000.
Solution 2: Basic Ownership Rights of Common Stockholders
In the absence of restrictive provisions, common stockholders generally have the following basic ownership rights:
- Voting Rights – Common shareholders have the right to vote on key corporate matters, including electing the board of directors and approving major corporate policies.
- Right to Dividends – If the company declares dividends, common shareholders are entitled to receive their share based on the number of shares owned.
- Right to Sell Shares – Stockholders can freely buy or sell their shares in the open market unless there are specific restrictions.
- Preemptive Right – Shareholders may have the right to purchase additional shares before the company offers them to external investors to maintain their ownership percentage.
- Right to Share in Assets upon Liquidation – If a company is liquidated, common stockholders receive any remaining assets after all debts and preferred stock obligations are settled.
- Right to Inspect Corporate Records – Shareholders can review financial reports and corporate records, ensuring transparency and accountability.
Explanation
The carrying value of bonds represents the actual liability that the company reports in its financial statements. The discount on bonds payable is a contra-liability account that reduces the bonds’ face value. In this case, the discount reduces the liability, meaning the company recognizes a lower obligation than the face value of $700,000.
For common stockholders, their rights give them a voice in corporate governance and financial participation in the company’s success. While they are the last to be paid in liquidation, they benefit from ownership advantages like capital appreciation, voting influence, and dividend earnings.
Now, let’s generate an image illustrating these financial concepts.
Here is the educational infographic illustrating the carrying value of bonds payable and the basic ownership rights of common stockholders. Let me know if you need any modifications or explanations!