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Exam 20: Corporations: Formation and Capital Stock Transactions

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Question 21

Multiple Choice

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The entry to record the issuance of 1,000 shares of $2 stated-value common stock for $10 a share consists of a debit to Cash for $10,000 and a:

A) a credit to Common Stock for $10,000.
B) a credit to Common Stock for $2,000 and a credit to Paid-in Capital in Excess of Par Value
-Common Stock for $8,000.
C) a credit to Common Stock for $2,000 and a credit to Paid-in Capital in Excess of Stated Value-Common Stock for $8,000.
D) a credit to Common Stock for $2,000 and a credit to Gain On Sale of Common Stock for
$8,000.

E) None of the above
F) B) and C)

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Question 22

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Callable preferred stock gives the shareholder the right to exchange preferred shares of stock for common shares based on the conversion ratio indicated on the stock certificate.

A) True
B) False

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Question 23

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The Gibbs Corporation has outstanding 20,000 shares of 10%, $50 par-value, cumulative, nonparticipating preferred stock and 80,000 shares of $10 par-value common stock. There were no dividends in arrears. The board of directors voted to distribute $80,000 as dividends in 2019, $110,000 in 2020, and $130,000 in 2021. Compute the following: 1. Total dividend paid to preferred stockholders in 2019. 2. Total dividend paid to common stockholders in 2019. 3. Total dividend paid to preferred stockholders in 2020. 4. Total dividend paid to common stockholders in 2020. 5. Total dividend paid to preferred stockholders in 2021. 6. Total dividend paid to common stockholders in 2021.

Which of the following statements is correct?

A corporation is owned by:

The Paid-in Capital in Excess of Par Value-Preferred Stock account would be shown in the:

A corporation has 1,000 shares of 12 percent, $60 par-value preferred stock and 20,000 shares of $2 par-value common stock outstanding. If the board of the directors declares dividends totaling $50,000, the preferred stockholders will receive a dividend of:

The amount paid for stock in excess of par value is called a(n)--------- .

Elsinore Corporation has outstanding 200,000 shares of $100 par-value preferred stock, issued at an average price of $110 a share. The preferred stock is convertible into common stock at the rate of five shares of common stock for each share of preferred stock. Louis Reynault owns 700 shares of the preferred stock. During the current year he decides to convert 300 shares into common stock. How many shares of common stock will he receive?

The entry to record the issuance of 1,000 shares of $4 par-value common stock for $14 a share consists of a debit to Cash for $14,000 and:

Robert Schuler, the owner of a sole proprietorship, is planning to incorporate his business. His capital account has a balance of $100,000 after revaluation of the assets. His cash account totals $30,000. He will receive 10%, $10 par-value preferred stock with a total par value equal to the cash transferred. The balance of his capital is to be exchanged for shares of $20 par-value common stock with a total par value equal to the remaining capital. How many shares of preferred stock should be issued to Schuler? How many shares of common stock should be issued to Schuler?

The entry to record a subscription for 100 shares of common stock at par value would consist of a debit to Subscriptions Receivable-Common and a credit to Common Stock.

The Common Stock Subscribed account has a(n)----------balance.

The conversion ratio is the number of shares of common stock for which a share of convertible preferred stock may be exchanged.

McDougall Corporation issued 40,000 shares of its $2 par-value common stock for cash at $20 a share. Record the issuance of the stock on page 1 of a general journal. Omit the description.

In respect to corporate debt, stockholders have----------- liability.

Callable preferred stock gives the issuing corporation the right to repurchase the preferred shares from its shareholders at a specified price.

The Lilac Corporation was organized on January 1, 2019. The firm is authorized to issue 160,000 shares of no-par-value common stock with a stated value of $40 per share and 40,000 shares of $100 par-value, 12 percent preferred stock. Record the selected transactions on page 1 of a general journal. Omit descriptions. Jan. 1 Issued 1,200 shares of common stock to Jane Doe for $40 a share. 1 Issued 900 shares of preferred stock to Ben Boston at par value. 6 Issued 600 shares of common stock to Maddie Bohne for $48 a share. 10 Received a subscription for 1,600 shares of preferred stock from Lance Davies for $110 a share, payable in two installments due on the 15th and 31st of January. 15 Received payment of stock subscription installment due from Lance Davies (one-half of the purchase price). 31 Received the balance due on the stock subscription of January 10 from Lance Davies. Issued the stock.

Organization costs are expensed when incurred.

If preferred stock is---------- , its owners must receive the stated dividends for both the current year and any prior years in which the stated dividend was not paid before the common stockholders can receive any dividend.