Final answer:
On February 1, 20x1, Davis Corporation likely issued 12 bonds, which are loan instruments that companies use to raise funds and pay a coupon rate to the bondholders. Shares of common stock, dividends, and capital gains relate to ownership and profit distribution in a firm.
Step-by-step explanation:
On February 1, 20x1, Davis Corporation issued 12 bonds. A bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations.
Owners of bonds are debtholders, or creditors, of the issuer. When corporations need to raise funds, they may choose to issue bonds that provide a coupon rate, which is the interest rate paid by bond issuers on the bond's face value. It's the basis for the bond's interest payments and represents a rate of return to the bondholders, the investors.
On the other hand, when companies issue shares of common stock, they are providing ownership interests to the shareholders. A dividend is a direct payment from a firm to its shareholders out of the profits made by the firm. Dividends are one way in which shareholders can earn a return on their investment, with the other being capital gains from selling the stock at a higher price than it was bought.