Dover Corporation owns 18 percent of the voting stock of Hassan, Inc. The remainder of the Hassan stock is held by numerous investors with small holdings. Monica Kurtz, president of Dover and a member of Hassan's board of directors, heavily influences Hassan's policies. Under the market value method of accounting for investments, Dover's net income increasing as it receives dividends from Hassan. Dover pays President Kurtz a bonus computed as a percentage of Dover's net income. Therefore, Kurtz can control her personal bonus to a certain extent by influencing Hassan's dividends. A recession occurs in 20X0, and corporate income is low. Kurtz uses her power to have Hassan, Inc., pay a large cash dividend. The action requires Hassan to borrow so heavily that it may lead to financial difficulty. Required: In getting Hassan to pay the large cash dividend, is Kurtz acting within her authority as a member of the Hassan board of directors? Are Kurtz's actions ethical? Whom can her actions harm?
Dover Corporation owns 18 percent of the voting stock of Hassan, Inc. The remainder of the Hassan stock is held by numerous investors with small holdings. Monica Kurtz, president of Dover and a member of Hassan's board of directors, heavily influences Hassan's policies. Under the market value method of accounting for investments, Dover's net income increasing as it receives dividends from Hassan. Dover pays President Kurtz a bonus computed as a percentage of Dover's net income. Therefore, Kurtz can control her personal bonus to a certain extent by influencing Hassan's dividends. A recession occurs in 20X0, and corporate income is low. Kurtz uses her power to have Hassan, Inc., pay a large cash dividend. The action requires Hassan to borrow so heavily that it may lead to financial difficulty. Required: In getting Hassan to pay the large cash dividend, is Kurtz acting within her authority as a member of the Hassan board of directors? Are Kurtz's actions ethical? Whom can her actions harm?
SWFT Essntl Tax Individ/Bus Entities 2020
23rd Edition
ISBN:9780357391266
Author:Nellen
Publisher:Nellen
Chapter13: Corporations: Earning & Profits And Distributions
Section: Chapter Questions
Problem 31P
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