On March 2,2014,Burton Corporation issued 4,000 shares of 6 percent cumulative $100 par value preferred stock for $434,000.Each preferred share carried one nondetachable stock warrant which entitled the holder to acquire,at $17,one share of Burton $10 par common stock.On March 2,2014,the market price of the preferred stock (without warrants)was $90 per share and the market price of the stock warrants was $15 per warrant.The amount credited to Paid-In Capital in Excess of Par-Preferred by Burton on the issuance of the stock was

Question

Quizplus · Accepted Answer

Firstly, let's calculate the amount received from the issuance of preferred stock: 
$100 (par value per share) x 6% (annual dividend rate) x 4,000 (number of shares) = $24,000 (annual dividend payment)

Since the preferred stock is cumulative, the total annual dividend payment is $24,000 x 4 years (since it is cumulative) = $96,000

The company received $434,000 from the issuance of the preferred stock, so the remaining amount after paying the cumulative dividends is $434,000 - $96,000 = $338,000. 
Therefore, the amount credited to Paid-In Capital in Excess of Par-Preferred is $338,000 - ($100 x 4,000) = $34,000.

Note that the market price of the preferred stock and the stock warrants are not relevant in calculating the amount credited to Paid-In Capital in Excess of Par-Preferred.

On March 2,2014,Burton Corporation Issued 4,000 Shares of 6 Percent