Wallace Computer Company is a small, closely held corporation. Eighty percent of the stock is held by Derek Wallace, president. Of the remainder, 10% is held by members of his family and 10% by Kathy Baker, a former officer who is now retired. The balance sheet of the company at June 30, 2020, was substantially as shown below. Assets 000 Liabilities and Stockholders’ Equity Cash $ 22,000 Current liabilities $ 50,000 Other 0450,000 Common stock 250,000 00 $472,000 Retained earnings 0172,000 00 00 00 $472,000 Additional authorized common stock of $300,000 par value had never been issued. To strengthen the cash position of the company, Wallace issued common stock with a par value of $100,000 to himself at par for cash. At the next stockholders’ meeting, Baker objected and claimed that her interests had been injured. Instructions a. Which stockholder's right was ignored in the issue of shares to Derek Wallace? b. How may the damage to Baker's interests be repaired most simply? c. If Derek Wallace offered Baker a personal cash settlement and they agreed to employ you as an impartial arbitrator to determine the amount, what settlement would you propose? Present your calculations with sufficient explanation to satisfy both parties.
Wallace Computer Company is a small, closely held corporation. Eighty percent of the stock is held by Derek Wallace, president. Of the remainder, 10% is held by members of his family and 10% by Kathy Baker, a former officer who is now retired. The
| Assets | 000 | Liabilities and |
|
| Cash |
$ 22,000
|
Current liabilities |
$ 50,000
|
| Other |
0450,000
|
Common stock |
250,000
|
| 00 |
$472,000
|
0172,000
|
|
| 00 | 00 | 00 |
$472,000
|
Additional authorized common stock of $300,000 par value had never been issued. To strengthen the cash position of the company, Wallace issued common stock with a par value of $100,000 to himself at par for cash. At the next stockholders’ meeting, Baker objected and claimed that her interests had been injured.
Instructions
a. Which stockholder's right was ignored in the issue of shares to Derek Wallace?
b. How may the damage to Baker's interests be repaired most simply?
c. If Derek Wallace offered Baker a personal cash settlement and they agreed to employ you as an impartial arbitrator to determine the amount, what settlement would you propose? Present your calculations with sufficient explanation to satisfy both parties.
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