A company issues 1 million shares of preferred stock with a par value of $2 and a market price of $26 per share.The issuance should be recorded as:
A)a debit to Cash of $26 million and a credit to Preferred Stock of $26 million.
B)a debit to Cash of $2 million and a credit to Preferred Stock of $2 million.
C)a debit to Cash of $26 million,a credit to Additional Paid-in Capital of $2 million,and a credit to Preferred Stock of $24 million.
D)a debit to Cash of $26 million,a credit to Preferred Stock of $2 million,and a credit to Additional Paid-in Capital of $24 million.

Question

Quizplus · Accepted Answer

When a company issues preferred stock, the cash received is credited to Preferred Stock at par value and any excess over par value is credited to Additional Paid-in Capital. Therefore, the issuance should be recorded as a debit to cash for the total amount received ($26 million) and a credit to Preferred Stock of $2 million (1 million shares x $2 par value), and a credit to Additional Paid-in Capital of $24 million ($26 million cash received - $2 million par value). Choice D accurately reflects this accounting treatment.

A Company Issues 1 Million Shares of Preferred Stock with a Par