Question

Use the Following Information to Answer the Questions Below

1) Dec 1 the J-Corp Authorized 100,000 Shares of $1 par value stock.
2) Dec 1 the J-Corp Issued 40,000 shares of common stock for $10 each.
3) Dec 1 the J-Corp Issued 300 Bonds for $1,000 each Face Value of $1,000, Due in Twenty Years, Face Int. Rate of 4% payable Annually on November 30th.
4) Dec 10 the J-Corp made Service Sales to Customers of $140,000 on account.
5) Dec 24 the J-Corp Bought Back 6,000 Shares of Common stock for $5 each
6) Dec 26 the J-Corp Paid December Operating Expenses of $33,000 with checks.
7) Dec 31 the J-Corp Declared Dividends to be Paid next Month at $1.50 Cents per Share of Common Stock Outstanding.
8) Dec 31 the J-Corp recorded One month of Interest Payable on the Bonds

Answer 1

Investors in a company can expect returns through dividends or capital gains from stocks, and interest payments from bonds. Stockholders earn when the stock value increases or during dividend distributions, while bondholders earn through interest payments and are prioritized for repayment over stockholders in case of liquidation.

Step-by-step explanation:

When a company such as J-Corp decides to issue stock and bonds, it's offering a part of its equity and debt to investors, expecting to provide them with a rate of return. The rate of return can manifest as dividends, which are direct payments to shareholders, or through capital gains, where the value of an asset increases over time. For instance, an investor might purchase a share at a lower price and later sell it for a higher price, the profit being the capital gain.

Similarly, when a company issues bonds, it is effectively taking a loan from investors, promising to pay periodic interest and return the principal on a specified date. Investors who buy bonds become bondholders and have a claim over the interest and the eventual repayment of the principal. However, if the company fails to make interest payments, bondholders have the right to take the company to court, but there is a risk they might not recover the full amount lent if the company doesn't have enough assets.