Accounting Test 4
Aloha Corporation issues 6,000 shares of its common stock for $144,000 cash on February 20. Prepare journal entries to record this event under each of the following separate situations.
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Holders of the stock are entitled to receive current and all past dividends before common stockholders receive any dividends.
1. Cumulative
. Holders of the stock lose any dividends that are not declared in the current year
2. Noncumulative
Holders of the stock can receive dividends exceeding the stated rate under certain conditions
3. Convertible
Holders of this stock can exchange it for shares of common stock
3. Convertible
Holders of the stock are not entitled to receive dividends in excess of the stated rate.
5. Nonparticipating
The issuing corporation can retire the stock by paying a pre-specified price
Callable
Owners of preferred stock often do not have
Voting rights
A corporation issued 1,000 shares of $100 par value preferred stock for $120,000 cash.
Cash 120,000 Preferred Stock, $100 Par Value 100,000 Paid-In Capital in Excess of Par 20,000 Value, Preferred Stock Total par value = $100 par x 1,000 = $100,000 Paid in Capital in excess of par = $120,000 cash - $100,000 par value.
. Prepare journal entries to record these stock issuances. A corporation issued 4,000 shares of $10 par value common stock for $70,000 cash. Cash 70,000
Common Stock, $10 Par Value 40,000 Paid-In Capital in Excess of Par 30,000 Value, Common Stock Total par value = $10 par x 4,000 = $40,000 Paid in Capital in excess of par = $70,000 cash - $40,000 par value.
Par Value of Common Stock Common stock holders have a legal right to be paid the par value of stock at the time of maturity.
False
Par value of stock is the same as the stock's fair market value or selling price. True
False
The legal minimum amount of capital under state law that cannot be paid out as dividends and represents the cheapest price that stock can be sold for is known as:
Par Value
If a corporate dissolves, common shareholders may only receive any assets of the corporation after the corporation pays creditors and bondholders first, and then the preferred stockholders. Common shareholders receive only the residual assets. If no assets remain after those distributions, no assets are paid to the common shareholders.
True
Preferred shareholders may receive a return of the par value of their preferred stock if the stock is called. Par value of preferred stock is also used to determine the amount of dividends paid to preferred shareholders, if dividends are paid.
True
Stock holders do not have a legal right to receive dividends or any return of their investment. Bond holders have a legal right to receive periodic interest payments and a return of par value at bond maturity. Therefore bonds are a safer investment
True
. Stock holders only have the right to receive dividends if the board of directors declares a dividend and there is a sufficient balance in retained earnings to pay the dividend. State law does not usually require directors of profitable companies to declare dividends.
→ True