I need some direction on my Accounting Question...?

-I have two scenarios for class with some questions that I have answered. I included the questions and my answers. If someone could just check them over and if I am wrong help me to understand why and what direction I can go from there?! Thanks so much in advance! 10 points to the most helpful answer.



The First Scenario:

Richard Petri is the chief financial officer at Computer Electronics, Inc. In this capacity, he attends all monthly board of directors meetings. A special meeting of the board of directors was called to discuss substantially increasing the amount of cash dividends paid to stockholders this year. The board voted unanimously to increase the dividend. Later that night, Richard called his uncle and hinted around that Computer Electronics, Inc., was going to make its stockholders very happy. His uncle didn't own any stock in Computer Electronics but went out and purchased 500 shares the next day.



Did Richard do anything unethical?

I think he did give away some information that perhaps he shouldn鈥檛 have. I don鈥檛 know if it is truly unethical though; or that was his intent to get his uncle to purchase stocks. In my opinion though, he probably shouldn鈥檛 have said anything until after news had been released. This way he avoids any speculation that he was giving out information he shouldn鈥檛 have; especially with the position he is in.



Would your answer be different if Richard specifically stated that the dividends on Computer Electronics, Inc., were being increased substantially? Yes, I believe that that would be unethical to give out that information. Since it is a publicly owned corporation and the sale of stocks could be affected by this if the information was not yet released. Richard鈥檚 uncle could make a substantial gain on investment if he purchases stock in the company.



What should Richard's boss do if he finds out what Richard said to his uncle?

Worst case scenario, Richard could be removed from the position of CFO, if the information he gives out was not yet supposed to be released. If he did not state the information outright though he could be reprimanded for his actions. This is because now the company is going to have to pay an extra shareholder increased dividends.







The Second Scenario:

Garcia Corporation has paid 60 consecutive quarterly cash dividends (15 years). The last 6 months, however, have been a cash drain on the company, as profit margins have been greatly narrowed by increasing competition. With a cash balance sufficient to meet only day-to-day operating needs, the president, Tom Henson, has decided that a stock dividend instead of a cash dividend should be declared. He tells Garcia's financial vice president, Andrea Lane, to issue a press release stating that the company is expanding its consecutive dividend record with the issuance of a 5% stock dividend. "Write the press release convincing the stockholders that the stock dividend is just as good as a cash dividend," he orders. "Just watch our stock rise when we announce the stock dividend; it must be a good thing if that happens."



Who are the stakeholders in this situation?

The stakeholders in this situation would be the stockholders, the President and the Vice President, in my opinion.



Is there anything unethical about Henson's intentions or actions?

In a way Henson may or may not be acting unethical. He is worried about keeping his company afloat and trying to keep the stockholders happy as well. On the other hand, he is trying to pull the wool over the stockholder鈥檚 eyes and convince them that the stock dividends are as good as cash dividends.



What is the effect of a stock dividend on a corporation's stockholders' equity account?

鈥淎 stock dividend does not decrease total stockholders鈥?equity or total assets.鈥?(p612) So, in this case I would say that it would not affect the stockholders鈥?equity account. The number of stocks that a stockholder owns will increase, but their percentage of the company will remain the same.



Which would you rather receive as a stockholder - a cash dividend or a stock dividend? Why?

I think that I would rather have the cash dividends than the stock dividends. Even though I would have to pay tax I would still be getting cash on a regular basis (quarterly in this case) from the company. To me this is better to have money in my pocket than to have more stocks. Also, if I were to pick stock dividend the price per share would drop every time I earned a dividend, along with not increasing the company鈥檚 value. This is why I think I would prefer cash dividends.