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BUSINESS LAW Kate Inc. is offering stock with a par value of $100. You can acquire...

BUSINESS LAW

Kate Inc. is offering stock with a par value of $100. You can acquire this stock from the corporation for $75.

Alley Inc. is offering stock with a par value of $25. You can acquire this stock from the corporation for $75.

Which stock is the better investment? What is the legal effect of purchasing the stock from Kate Inc?

Suppose you purchase the stock in Kate Inc. for $75. You then sell the stock to Gene for $150. Discuss what liability, if any, which Gene has to Kate Inc.

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Answer #1
  • Investment in Alley Inc. is better in comparison to investment in Kate Inc. because the market price of Alley Inc. is higher than the market price of Kate Inc. and Higher market price reflects the good performance of company. Share price of Alley Inc. is at premium in market so it will be transferred in "Other Comprehensive Income" in financial statements.
  • If investment is made in shares of Kate Inc. then the discount of share will be written off from books of accounts immediately and Gene has purchased the same at premium therefore, Gene will be responsible to Kate Inc. only for the liability up to par value of $100 only. Excess amount paid by Gene will be treated as cost of investment for Gene and for us it will be treated as sale value of investment.
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