Oneal Wants to Buy a Computer Software Sales Business Being

question 52

Essay

Oneal wants to buy a computer software sales business being carried on by Softstuff Inc.The corporation has two classes of shares: common shares, which vote, and are entitled to receive dividends and the remaining property of the corporation on dissolution, and preferred shares, which do not vote, but are entitled to an annual dividend of 10 percent of the issue price and to receive the amount invested in return for the preferred shares.Dividends on the preferred shares must be paid before any dividends are paid on the common shares.Also, no payment on dissolution can be made to the holders of the common shares until full payment is made to the holders of preferred shares.Clay holds all of the 10 000 issued common shares.All of the 500 issued preferred shares are held by Clay's mother.Can Oneal buy control of this business by buying all of the common shares of the corporation from Clay?

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Definitions:

Fixed Manufacturing Overhead

Indirect manufacturing costs that do not vary with the level of production, such as rent, property taxes, and insurance.

Direct Labor

Direct labor refers to the work performed by employees directly involved in the manufacturing process of products.

Raw Material

Fundamental substances that are processed and converted into final products during manufacturing.

Work in Process

Inventory that includes goods that are in the production process but have not yet been completed.