24) The sale of common stock was recorded as a sale of preferred stock. This error would cause:
A) the period end stockholders’ equity to be overstated.
B) the period end stockholders’ equity to be understated.
C) the period’s net income to be understated.
D) None of these are correct.
25) The par value of stock represents the legal capital of the corporation.
26) A company issues no-par value with no stated value stock. Therefore, the company does not have a
minimum legal capital amount.
27) Madison Corporation is authorized to issue 3,000 shares of common stock. Record the journal entry
for each of the following independent situations. Assume Madison issues 750 shares at $15 on August 31.
a) Common stock has a $10 per share par value.
b) Common stock has no par value and no stated amount.
c) Common stock is no-par stock with a stated value of $8 per share.
28) Journalize the following independent transactions:
a) Casey Company sells 250 shares of $20 par-value common stock at $20.
b) Jacob Corporation sells 100 shares of $15 par-value common stock at $20.
c) Moss Inc. sells 40 shares of no-par common stock with a $15 stated value for $30 per share.
29) Birch Company issued 200 shares of common stock with a par value of $12 per share in exchange for
equipment with a fair market value of $3,000. Record the journal entry for the stock issuance.
30) Carmen Corporation issued 200 shares of its $10 par value stock to an attorney. The shares are in full
settlement for $8,000 of legal services to help set up the company. Prepare the journal entry for the stock
issuance.
31) R. Red formed a corporation with an authorization of 20,000 shares of $50 par, 6% non–cumulative
preferred stock and 100,000 shares of $10 par common stock. The following selected transactions were
completed during the first year of operations. Journalize the transactions omitting explanations.
Jan 10 Issued 20,000 shares of common stock at par for cash.
31 Issued 20,000 shares of common stock in exchange for land, buildings, and
Equipment with fair market prices of $52,000, $125,000, and $48,000, respectively.
Feb 24 Issued 2,000 shares of preferred stock at $54 for cash.
32) Mack Corporation has been issued a charter by the state of New Hampshire. This charter gives Mack
the authority to issue 20,000 shares of $25 par value preferred stock and 100,000 shares of $10 par value
common stock. Journalize the entries listed below.
June 1 Issued 4,000 shares of preferred stock at $28 per share.
4 Issued 5,000 shares of common stock at $16 per share.
13 Issued 6,000 shares of common stock at $18 per share.
21 Issued 1,000 shares of preferred stock at $30 per share.
33) Journalize the following stock transactions for Rick Corporation.
July 22 Issued 10,000 shares of $5 par common stock for $43,000 cash.
28 Issued 6,000 shares of $5 par common stock for $33,000 cash.
31 Issued 4,000 shares of $12 par, 7% preferred stock for $53,000 cash.
34) Sold common stock at a price above the par value.
Debit ________& ________ & ________ Credit ________ & ________ & ________
35) Exchanged common stock for machinery when the stock was selling at a premium.
Debit ________& ________ & ________ Credit ________ & ________ & ________
36) Sold common stock at a price equal to the par value.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
37) Exchanged common stock for a building and land when the stock was selling at a discount.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
38) Sold preferred stock at a price equal to par value.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
39) Purchased machinery for cash.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
40) Exchanged common stock for services of corporation organizers (valued at par).
Debit ________ & ________ & ________ Credit ________ & ________ & ________
41) Purchased land by exchanging common stock (valuation is above par)
Debit ________ & ________ & ________ Credit ________ & ________ & ________
42) Sold common stock at a price above par accepting a subscription.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
18.3 Learning Objective 18-3
1) If preferred dividends are limited to the stated rate of dividend, the preferred stock is:
A) non-cumulative.
B) cumulative.
C) participating.
D) nonparticipating.
2) Preferred stock that is given a right to share with the common stock in dividends in excess of a stated
preferred dividend rate is called:
A) nonparticipating.
B) participating.
C) cumulative.
D) non-cumulative.
3) Rhubarb Corporation’s outstanding stock is 100 shares of $100, 11% cumulative nonparticipating
preferred stock and 2,000 shares of $12 par value common stock. Rhubarb paid $1,600 cash dividends
during the year. Common stockholders received:
A) $0.
B) $500.
C) $2,500.
D) $1,100.
4) Antiques.com Corporation’s outstanding stock is 75 shares of $60, 8% cumulative nonparticipating
preferred stock and 2,000 shares of $10 par value common stock. Antiques paid $2,400 cash dividends
during the year. Common stockholders received:
A) $2,400.
B) $360.
C) $2,040.
D) $0.
5) Custer.com Company‘s outstanding stock is 100 shares of $100, 6% cumulative nonparticipating
preferred stock and 1,000 shares of $10 par value common stock. Custer paid $2,000 cash dividends
including one-year dividends in arrears to preferred stockholders. Common stockholders received:
A) $0.
B) $800.
C) $1,818.
D) $600.
6) Alpha Corporation’s has 1,500 shares of $40 par, 7% cumulative preferred stock and 2,200 shares of $10
par common stock. Alpha paid $10,000 in cash dividends including one-year dividends in arrears to
preferred stockholders. Common stockholders will receive:
A) $0.
B) $220.
C) $1,600.
D) $5,800.
7) Soy.com Corporation has 100 shares of $100, 6% cumulative nonparticipating preferred stock and 1,000
shares of $10 par value common stock outstanding. The company paid $2,000 cash dividends including
one-year dividends in arrears to preferred stockholders. Preferred stockholders received:
A) $1,200.
B) $2,000.
C) $182.
D) $600.
8) To calculate dividends on par-value preferred stock:
A) multiply the number of shares times rate.
B) multiply rate times par–value.
C) multiply number of shares outstanding times rate times par-value.
D) None of these answers are correct.
9) When a company distributes some of their profits to shareholders, it is in the form of:
A) cumulative stock.
B) reduced taxes.
C) dividends.
D) bonds.
10) Most preferred stock currently being issued is participating, while it is very unusual to find
cumulative preferred stock.
11) Number of preferred shares times par value times dividend rate is the formula used to determine
dividends to be paid.