A company issues 100,000 shares of preferred stock for $40 a share.The stock has a fixed dividend rate of 5% and a par value of $3 per share.The company records the issuance with a:

Question

Quizplus · Accepted Answer

The total amount received from the issuance of preferred stock is $4 million (100,000 shares x $40 per share). The par value of the preferred stock is $300,000 (100,000 shares x $3 per share). Therefore, the remaining amount of $3.7 million is recorded as Additional Paid-in Capital. The entry to record the issuance of preferred stock is a debit to Cash for $4 million, a credit to Preferred Stock for $300,000, and a credit to Additional Paid-in Capital for $3.7 million. Thus, option C is the correct answer.

A Company Issues 100,000 Shares of Preferred Stock for $40