Mixed Inc., a cement manufacturer, issued $5,000 of common stock to their attorney for legal services involving the formation of the company. In reality, the services were worth only $1,000. It can be said that the attorney has been issued a _____ and would be liable to the corporation for the $4,000 difference.

Question

Quizplus · Accepted Answer

Watered stock is issued when the actual value of the services or assets received by the company is less than the stated value of the stock issued. In this case, Mixed Inc. issued $5,000 worth of stock to their attorney for services worth only $1,000, creating watered stock. The attorney would be liable to the corporation for the $4,000 difference between the stated value and the actual value of the stock.

Mixed Inc, a Cement Manufacturer, Issued $5,000 of Common Stock to to Their