Lanthier's Heating & Air This company began business on June 1,2014.The articles of incorporation authorize issuance of 10,000 shares of $2 par common stock and 5,000 shares of $8 par 6% cumulative preferred stock.
-Refer to Lanthier's Heating & Air.What is the maximum amount that can be reported on the balance sheet for common stock and preferred stock,respectively,if all of the stock is issued?

Question

Quizplus · Accepted Answer

The maximum amount that can be reported on the balance sheet for common stock is calculated by multiplying the number of authorized shares by the par value per share. Therefore, the maximum amount for common stock is calculated as:

10,000 shares x $2 par value = $20,000

The maximum amount that can be reported on the balance sheet for preferred stock is calculated by multiplying the number of authorized shares by the par value per share and the dividend rate. Therefore, the maximum amount for preferred stock is calculated as:

5,000 shares x $8 par value x 6% dividend rate = $24,000

However, since the question asks for the maximum amount that can be reported on the balance sheet if all of the stock is issued, only the issued shares need to be considered. Assuming all of the authorized shares are issued, the maximum amount for preferred stock is:

5,000 shares x $8 par value x 6% dividend rate = $24,000

Therefore, the maximum amount that can be reported on the balance sheet for common stock and preferred stock, respectively, if all of the stock is issued is:

Common stock: $20,000 
Preferred stock: $24,000

The closest answer choice is B, which is the correct answer.

Lanthier's Heating & Air This Company Began Business on June