A company issues 100,000 shares of preferred stock for $40 per 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 debit to Cash for:
A) $4 million and a credit to Preferred Stock for $4 million.
B) $300,000 and a credit to Preferred Stock for $300,000.
C) $4 million, a credit to Preferred Stock for $300,000, and a credit to Additional Paid-in Capital for $3.7 million.
D) $300,000, a debit for $3.7 million to Long-term Investments , a credit to Preferred Stock for $300,000, and a credit to Additional Paid-in Capital for $3.7 million.

Question

Quizplus · Accepted Answer

The company receives $4 million in cash (100,000 shares x $40 per share). The Preferred Stock account is credited for the par value of $300,000 (100,000 shares x $3 par value), and the excess amount of $3.7 million is credited to Additional Paid-in Capital.

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