Question 1

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 2

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 3

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

Accepted Answer

Preferred stock is considered less risky than common stock because it has a higher claim on assets and earnings. Preferred stockholders are paid dividends before common stockholders and have priority in the event of liquidation. Par value and no-par stock do not affect the level of risk for investors.

Question 4

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

Accepted Answer

This is because a company buying or selling its own stock does not involve a third party, and any change in value would only impact the company's own financial statements. Therefore, no gain or loss can be realized in the transaction. However, there may still be accounting entries required to reflect the transaction properly.

Question 5

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 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

The following information is from the balance sheet of Jackson Corporation as of December 31,2015.
  What is the average issue price of the preferred stock shares?

Accepted Answer

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Question 8

Which of the following is true of preferred stock?

Accepted Answer

Preferred stockholders usually receive a fixed amount of dividends before common stockholders. This is one of the primary reasons why preferred stock is considered less risky than common stock. However, preferred stockholders do not have higher voting rights than common stockholders, and there is no guarantee that they will not take a loss on their investment. The value of preferred stock can fluctuate based on market conditions and interest rates, and preferred stockholders may sell their shares for a price higher or lower than that of common stock, depending on demand and supply.

Question 9

On December 2,2015,Ewell Inc.purchases a piece of land from the original owner.In payment for the land,Ewell Inc.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 journal entry to record the transaction of purchasing land for common stock is to credit the Common Stock account for the par value of the stock issued and credit the remaining amount to the Additional Paid-In Capital or Paid-In Capital in Excess of Par-Common account. In this case, Ewell Inc. issued 8,000 shares of stock with a par value of $1.00, for a total of $8,000 credited to the Common Stock account. The land has a market value of $400,000, which means that the excess amount above par ($392,000) needs to be credited to the Paid-In Capital in Excess of Par-Common account. Thus, the correct journal entry is to credit Common Stock-$1 Par Value for $8,000 and credit Paid-In Capital in Excess of Par-Common $392,000.

Question 10

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 for the difference between the sale price and the par value, not a gain.

Question 11

The following information is from the balance sheet of Tudor Corporation as of December 31,2015.  What was the total paid-in capital as of December 31,2015?

Accepted Answer

Total paid-in capital can be calculated by adding up the Common stock and Additional paid-in capital. In this case, Common stock is $450,000 and Additional paid-in capital is $279,000, so the total paid-in capital is $729,000 (Choice C).

Question 12

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

Accepted Answer

This is true.

Question 13

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

Accepted Answer

Investing cash in a corporation in exchange for stock increases the corporation's cash asset and stockholders' equity, but does not affect its liabilities. Therefore, only assets and stockholders' equity are increased.

Question 14

The following information is from the balance sheet of Lawson Corporation as of December 31,2015.  What was the average issue price of the common stock shares?

Accepted Answer

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Question 15

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 16

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

Accepted Answer

This is a common practice to allow flexibility in pricing and to avoid legal constraints on issuing stock at a discount.

Question 17

Osbourne Inc.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 credit to Paid-In Capital in Excess of Par-Common is calculated as the difference between the fair value of the equipment ($1,000,000) and the par value of the stock issued (50,000 shares x $0.01 = $500), which equals $999,500.

Question 18

Preferred stockholders ________.

Accepted Answer

Preferred stockholders have the first claim on dividend funds, which means that they have priority in receiving dividends before common stockholders. They are not, however, guaranteed that they will not take a loss on their investment, do not have higher voting rights than common stockholders, and may be sold for a higher price than common stock depending on market demand.

Question 19

Peterson Inc.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

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Question 20

In the event of liquidation,preferred stockholders ________.

Accepted Answer

Preferred stockholders have a higher priority claim on remaining corporate assets after debts are paid compared to common stockholders. However, they are not guaranteed to get their investment back in full and do not necessarily have higher selling prices or voting rights than common stockholders.

Quiz 13: Stockholders Equity