Question 1

The entry to record selling 800 shares of stated value $37 common stock for $59 per share would be:

Accepted Answer

The transaction involves selling 800 shares of common stock with a stated value of $37 each for a total of $59 per share, which is $22 above the stated value. The entry should reflect the new amount received for each share in excess of the stated value as "Paid-in Capital in Excess of Stated Value" account.

Debit Cash for the total amount received, which is 800 x $59 = $47,200. Credit Common Stock for the total stated value of the shares sold, which is 800 x $37 = $29,600. Credit the remaining amount, which is the excess of the sales price over the stated value, to "Paid-in Capital in Excess of Stated Value" account, and the amount is 800 x $22 = $17,600. Therefore, the entry should be:

Debit Cash $47,200; credit Common Stock $29,600; credit Paid-in Capital in Excess of Stated Value $17,600.

Question 2

A company issued 700 shares of $2 par common stock in exchange for a piece of equipment with a current market value of $24,000. Which of the following is the correct journal entry for this transaction?

Accepted Answer

The answer of A company issued 700 shares of $2...

Question 3

If a company has 2,500 shares authorized and 1,500 have been issued, the annual dividends on $20 par 5% preferred stock is $1,500.

Accepted Answer

The annual dividend for preferred stock is calculated as the par value multiplied by the dividend rate and the number of shares issued. Here, $20 par value * 5% * 1,500 shares = $1,500.

Question 4

Evergreen Corp. issues 12,000 shares of $5 par common stock for $8.50 per share. The amount credited to paid-in capital in excess of par is:

Accepted Answer

The total amount received from issuing the 12,000 shares of common stock is:

$8.50 per share x 12,000 shares = $102,000

The par value of the common stock is:

$5 per share x 12,000 shares = $60,000

The difference between the total amount received and the par value is the amount credited to paid-in capital in excess of par:

$102,000 - $60,000 = $42,000

Therefore, the correct answer is D, $42,000.

Question 5

If a corporation has both common and preferred stock, the preferred stockholders will receive their dividends first, if the money is available.

Accepted Answer

Preferred stockholders have priority over common stockholders in receiving dividends, if the corporation has both types of stock. However, if the corporation does not have enough funds to pay dividends to both preferred and common stockholders, preferred stockholders may receive partial or no dividend while common stockholders may receive nothing at all.

Question 6

The entry to record TLR, Inc. selling 1,200 shares of $6 par common stock at $10 per share would be to:

Accepted Answer

When common stock is sold at a price higher than its par value, there is a portion of the sale price that exceeds the par value. This excess amount is recorded in the account called "Paid-In Capital in Excess of Par-Common Stock".

In this case, TLR, Inc. sold 1,200 shares of $6 par common stock at $10 per share, which means that the total sale amount is $12,000 ($10 x 1,200). The total par value of the shares sold is $7,200 ($6 x 1,200), and the excess amount is $4,800 ($12,000 - $7,200).

Therefore, the entry to record this transaction would be to debit Cash $12,000, credit Common Stock $7,200, and credit Paid-In Capital in Excess of Par-Common Stock $4,800.

Question 7

The portion of Stockholders' Equity that can be used for dividends is referred to as legal capital.

Accepted Answer

Legal capital typically refers to the portion of stockholders' equity that cannot be used for dividends, as it is intended to protect creditors by maintaining a minimum equity base in the company.

Question 8

Evergreen Building, Inc. issued 2,000 shares of $14 par common stock in exchange for a truck with a current market value of $45,000. Which of the following is NOT part of the journal entry for this transaction?

Accepted Answer

The correct journal entry for this transaction would include debiting equipment for $45,000 (the market value of the truck), crediting Common Stock for $28,000 (2,000 shares at $14 par value each), and crediting Paid-in Capital in Excess of Par-Common for $17,000 (the difference between the market value of the truck and the par value of the shares). Crediting Common Stock for $45,000 is incorrect because it does not account for the par value of the stock and the excess over par value.

Question 9

Illusions Corp. issues 8,000 shares of $24 par common stock for $29 per share. The amount credited to paid-in capital in excess of par is:

Accepted Answer

The amount credited to paid-in capital in excess of par is calculated by subtracting the par value from the issue price and then multiplying by the number of shares issued. Here, ($29 - $24) * 8,000 = $5 * 8,000 = $40,000.

Question 10

The entry to record selling 700 shares of stated value $50 common stock for $74 per share would be:

Accepted Answer

The stated value of each share of common stock is $50, therefore 700 shares would have a stated value of $35,000 (700 x $50). However, the shares were sold for $74 per share, resulting in a total of $51,800 ($74 x 700). The entry to record this transaction would be a debit to Cash for the total amount received, $51,800, and a credit to Common Stock for the stated value of the shares, $35,000. The remaining amount, $16,800 ($51,800 - $35,000), is the excess over the stated value, which would be credited to Paid-in Capital in Excess of Stated Value. Therefore, the correct entry is to debit Cash $51,800; credit Common Stock $35,000; credit Paid-in Capital in Excess of Stated Value $16,800.

Question 11

The entry to record S&C, Inc. selling 1,500 shares of $9 par common stock for $22 per share would be to:

Accepted Answer

When a company issues common stock, the amount of money it receives is recorded as a credit to the Common Stock account. However, in this case, the company is selling common stock for more than its par value. Therefore, the excess amount received over the par value needs to be recorded separately as a credit to "Paid-In Capital in Excess of Par-Common Stock."

So, the journal entry to record the sale of 1,500 shares of $9 par common stock for $22 per share would be:

Debit Cash: $33,000 (1,500 shares x $22 per share)
Credit Common Stock: $13,500 (1,500 shares x $9 par value)
Credit Paid-In Capital in Excess of Par-Common Stock: $19,500 (($22 selling price - $9 par value) x 1,500 shares)

Question 12

NW Stone Supply issued 50 shares of $14 par common stock in exchange for a piece of equipment with a current market value of $1,000. Which of the following is NOT part of the journal entry for this transaction?

Accepted Answer

The correct journal entry for this transaction would include debiting equipment for $1,000 (its market value) and crediting common stock for the par value of the shares issued ($14 x 50 = $700) and the remaining $300 would be credited to paid-in capital in excess of par-common. Therefore, debiting equipment for $700 is not part of the correct journal entry.

Question 13

If a company has 3,000 shares authorized and 2,000 have been issued, the annual dividends on $18 par 3% preferred stock is $1,620.

Accepted Answer

The number of authorized and issued shares is not relevant to the calculation of dividend payments on preferred stock. The calculation of annual dividends on preferred stock is based on the par value, dividend rate, and number of shares of preferred stock outstanding. Therefore, the information provided about the authorized and issued shares is not useful in determining the accuracy of the statement about the annual dividends.

Question 14

The entry to record selling 400 shares of $28 stated value common stock for $44 per share would include:

Accepted Answer

The entry involves crediting Cash for the total sale amount ($44 x 400 = $17,600), crediting Common Stock for the stated value ($28 x 400 = $11,200), and crediting Paid-in Capital in Excess of Stated Value for the difference ($17,600 - $11,200 = $6,400).

Question 15

TLR Productions issued 40 shares of $16 par value stock to its accountant in full payment for her $1,300 fee for assisting in setting up the new company. The entry to record the issuance of the stock would include a:

Accepted Answer

The entry would include a credit to Common Stock for the par value of the shares issued, which is 40 shares x $16 = $640.

Question 16

Corporations declare cash dividends from Retained Earnings.

Accepted Answer

Corporations can declare cash dividends from their retained earnings, which are their accumulated profits from previous years, after accounting for any losses, dividends, and other adjustments. However, this decision is made by the corporation's board of directors, and it depends on various factors such as the company's financial performance, growth prospects, and cash flow requirements. Declaring dividends reduces the amount of retained earnings, and it may affect the company's ability to finance future growth initiatives or handle unexpected events.

Question 17

Ironworks, Inc. issued 400 shares of $9 par common stock in exchange for a piece of equipment with a current market value of $5,000. Which of the following is NOT part of the journal entry for this transaction?

Accepted Answer

Crediting Common Stock for $5,000 is incorrect because the Common Stock account should be credited for the par value of the shares issued ($9 par value x 400 shares = $3,600), not the market value of the equipment.

Question 18

Paying dividends causes a decrease in total assets, but an increase in total Stockholders' Equity.

Accepted Answer

Paying dividends causes a decrease in total assets and also a decrease in total Stockholders' Equity, as dividends are paid out from the company's retained earnings.

Question 19

Cumulative common stock will pay dividends in arrears.

Accepted Answer

The answer of Cumulative common stock will pay dividends in...

Question 20

Preferred stock may have its dividend rate listed as a percentage of par value per share or as a flat stated amount.

Accepted Answer

This is true. The dividend rate of preferred stock can be expressed as a percentage of par value per share or as a flat stated amount. The choice depends on the structure and terms of the specific preferred stock.

Quiz 10: Corporations: Paid-In Capital and Retained Earnings