Question 1

Which of the following is true of preferred stock?

Accepted Answer

Preferred shareholders typically have priority over common shareholders when it comes to receiving dividends. They often receive a fixed amount of dividends before any dividends are distributed to common shareholders. The other options are not true of preferred stock. Preferred shareholders are not guaranteed to avoid losses in their investments, they typically have limited or no voting rights, and the price of their shares may or may not be higher than that of common stock depending on market conditions.

Question 2

The following information is from the balance sheet of Jackson Corporation as of December 31, 2015. $$\begin{array} { | l | r | } 
\hline \text { Preferred Stock, } \$ 100 \text { par } & \$ 200,000 \
\hline \text { Paid-in Capital in Excess of Par-Preferred } & 14,000 \
\hline \text { Common Stock, } \$ 1 \text { par } & 68,000 \
\hline \text { Paid-in Capital in Excess of Par-Common } & 203,000 \
\hline \text { Retained Earnings } & \underline { 52,600 } \
\hline \text { Total Stockholders' Equity } & \$ 537,600 \
\hline
\end{array}$$ What is the average issue price of the preferred stock shares?

Accepted Answer

The average issue price of the preferred stock shares is $107. This is calculated by dividing the total paid-in capital in excess of par for the preferred stock by the number of preferred stock shares outstanding. In this case, the total paid-in capital in excess of par for the preferred stock is $14,000 and the number of preferred stock shares outstanding is 2,000 (200,000 / 100). Therefore, the average issue price of the preferred stock shares is $14,000 / 2,000 = $107.

Question 3

Stock sold for amounts in excess of par value results in a gain reported on the income statement.

Accepted Answer

The answer of Stock sold for amounts in excess of...

Question 4

The following information is from the balance sheet of Lawson Corporation as of December 31, 2015. $$\begin{array} { | l | r | } 
\hline \text { Preferred Stock, } \$ 100 \text { par } & \$ 500,000 \
\hline \text { Paid-in Capital In Excess of Par-Preferred } & 35,000 \
\hline \text { Common Stock, } \$ 1 \text { par } & 170,000 \
\hline \text { Paid-in Capital in Excess of Par-Common } & 510,000 \
\hline \text { Retained Earnings } & \underline { 131,500 } \
\hline \text { Total Stockholders' Equity } & \$ 1,346,500 \
\hline
\end{array}$$ What was the average issue price of the common stock shares?

Accepted Answer

The formula for calculating average issue price is

average issue price = (common stock balance + paid-in capital in excess of par-common) / common stock shares outstanding

Substituting the values from the balance sheet:

average issue price = (170,000 + 510,000) / common stock shares outstanding

We do not have the information for common stock shares outstanding, but we can deduce it as:

common stock balance / par value of common stock = common stock shares outstanding

Substituting the values:

170,000 / 1 = common stock shares outstanding

common stock shares outstanding = 170,000

Now, substituting the value of common stock shares outstanding in the average issue price formula:

average issue price = (170,000 + 510,000) / 170,000 = $4.00

Question 5

Most corporations set par value low and issue common stock for a price above par called a premium.

Accepted Answer

Most corporations set a low par value for their common stock and issue it for a price above par, which is called a premium. This allows them to raise more funds from investors and increase the value of their company.

Question 6

Dallkin Corporation issued 5,000 shares of common stock on January 1, 2015. The stock has no par value and was sold at $18 per share. The journal entry for this transaction would include a:

Accepted Answer

The answer of Dallkin Corporation issued 5,000 shares of common...

Question 7

A company cannot report a gain or loss when buying or selling its own stock.

Accepted Answer

This is because a company cannot make a profit or loss from its own stock since it already owns shares in itself. However, the company may report a gain or loss if it repurchases its own shares and then resells them at a different price to other investors.

Question 8

When a company sells stock for less than the par value, it will record a gain on sale for the amount in excess of par.

Accepted Answer

When a company sells stock for less than the par value, it will record a loss on sale since the stock is being sold at a discount.

Question 9

The price that the corporation receives from issuing stock is called the issue price.

Accepted Answer

The issue price refers to the price that a corporation receives when it first issues or sells its stock to investors.

Question 10

Peterson Company issued 4,000 shares of preferred stock for $240,000. The stock has a par value of $60 per share. The journal entry to record this transaction would:

Accepted Answer

The answer of Peterson Company issued 4,000 shares of preferred...

Question 11

In the event of liquidation, preferred shareholders:

Accepted Answer

Preferred shareholders have a higher claim on remaining corporate assets after debts are paid. However, they are not necessarily guaranteed to get their investment back in full, as this would depend on the amount of the remaining assets. They also do not necessarily have a greater ability to sell their shares for higher amounts than common stock. The voting rights of preferred shareholders may also be limited in certain cases.

Question 12

Which of the following types of stock is considered least risky for investors?

Accepted Answer

Preferred stock is considered least risky for investors because it typically guarantees a fixed dividend and has preference over common stock in the event of liquidation. Common stock and no-par stock do not offer such guarantees, while par value stock merely indicates a minimum price at which the stock can be sold.

Question 13

When a corporation sells 10,000 shares of $10 par value common stock for $120,000, the Common Stock account is credited for $100,000.

Accepted Answer

The answer of When a corporation sells 10,000 shares of...

Question 14

Preferred shareholders:

Accepted Answer

Preferred shareholders have the first claim on dividends and are paid out before common shareholders. However, they are not necessarily guaranteed that they will not take a loss on their investment and they do not have higher voting rights than common shareholders. The price of preferred stock can vary and may sometimes be higher than that of common stock.

Question 15

Which of the following would be included in the entry to record the issuance of 5,000 shares of $10 par value common stock at $13 per share cash?

Accepted Answer

The answer of Which of the following would be included...

Question 16

Which of the following occurs when a shareholder invests cash in a corporation in exchange for stock?

Accepted Answer

When a shareholder invests cash in a corporation in exchange for stock, the cash received is an asset and the stock issued is part of the stockholders' equity. Therefore, both assets and stockholders' equity are increased. Liabilities are not affected by this transaction.

Question 17

On December 2, 2015, Ewell Company purchases a piece of land from the original owner. In payment for the land, Ewell Company issues 8,000 shares of common stock with $1.00 par value. The land has been appraised at a market value of $400,000. Which of the following is included in the journal entry to record this transaction?

Accepted Answer

The answer of On December 2, 2015, Ewell Company purchases...

Question 18

Osbourne Company issued 50,000 shares of common stock in exchange for manufacturing equipment. The equipment has a fair value of $1,000,000. The stock has par value of $0.01 per share. Which of the following is included in the journal entry to record this transaction?

Accepted Answer

The answer of Osbourne Company issued 50,000 shares of common...

Question 19

Bradley Corporation issued 10,000 shares of common stock on January 1, 2015. The stock has a par value of $0.01 per share and was sold for cash at par. Which of the following is the correct journal entry to record this transaction?

Accepted Answer

The answer of Bradley Corporation issued 10,000 shares of common...

Question 20

The following information is from the balance sheet of Tudor Corporation as of December 31, • 2015. $$\begin{array} { | l | r | } 
\hline \text { Preferred Stock, } \$ 100 \text { par } & \$ 300,000 \
\hline \text { Paid-in Capital in Excess of Par-Preferred } & 21,000 \
\hline \text { Common Stock, } \$ 1 \text { par } & 102,000 \
\hline \text { Paid-in Capital in Excess of Par-Common } & 306,000 \
\hline \text { Retained Earnings } & \underline { 78,900 } \
\hline \text { Total Stockholders' Equity } & \$ 807,900 \
\hline
\end{array}$$ What was the total paid-in capital as of December 31, 2015?

Accepted Answer

Total paid-in capital is the sum of preferred stock, paid-in capital in excess of par-preferred, common stock, and paid-in capital in excess of par-common: $300,000 + $21,000 + $102,000 + $306,000 = $729,000.

Quiz 13: Corporations