Question

In: Accounting

#1) A company issues 1.18 million shares of preferred stock with a par value of $11.00...

#1) A company issues 1.18 million shares of preferred stock with a par value of $11.00 at its market price of $35.00 per share. The issuance should be recorded with a debit to Cash for:

$28.32 million, a credit to Additional Paid-in Capital for $12.98 million, and a credit to Preferred Stock for $41.30 million.

$41.30 million and a credit to Preferred Stock for $41.30 million.

$12.98 million and a credit to Preferred Stock for $12.98 million.

$41.30 million, a credit to Preferred Stock for $12.98 million, and a credit to Additional Paid-in Capital for $28.32 million.

#2) The combined effect of the declaration and payment of a cash dividend on a company's financial statements is to:

A - increase total liabilities and decrease stockholders' equity.

B - increase total expenses and decrease assets.

C - increase total assets and increase stockholders' equity.

D - decrease total assets and decrease stockholders' equity.

#3) All of the following are a part of contributed capital except:

A - Common Stock.

B - Additional Paid-in Capital.

C - Preferred Stock.

D - Retained Earnings.

#4) In an IPO on May 1, 2009, Timmy Hilfigure purchased 1,000 shares of Abner Crummie, Inc. for $5,000. On April 30, 2015, Timmy Hilfigure sold the 1,000 shares for $8,000 to Ralph Loring. What is the effect of the sale on April 30, 2015?

A - Abner Crummie, Inc. will record a $3,000 loss.

B - Abner Crummie, Inc. will record a $3,000 gain.

C - Abner Crummie, Inc. will not be directly affected by this transaction.

D - Abner Crummie, Inc. will record a decrease in Cash of $8,000.

Expert Solution

1. $41.30 million, a credit to Preferred Stock for $12.98 million, and a credit to Additional Paid-in Capital for $28.32 million.

Reason - the company is receiving the cash amounting to $ 41.30 resulting in cash account debit by that much amount and preferred stock should be booked at par to show the correct liability againts it. balance amount is treated as additional or premium for the share.

2. D - decrease total assets and decrease stockholders' equity.

Reason - Declaration & Payment of dividend will result in decrease of Cash and Retained Earnings amount in the balance sheet.

3. D - Retained Earnings

As the retained earning are the part of pervious years profits which the company has acculated for business growth.

4. C - Abner Crummie, Inc. will not be directly affected by this transaction.

As the company will not be directly affected by the transcation as the share holder may buy or sale the shares of the company at profit or loss as both are having saparate legal entity. The transaction may result for 3000 profit for the seller & 8000 cost for the buyer but nothing for the company. Only the owner has changed. No acconting adjustment in the books of company.

ekkarill92 answered 1 year ago

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