Exam 20: Corporations: Organization and Capital Stocks

The Delta Sunrise Corporation is incorporated under the laws of Mississippi. The certificate of incorporation shows that the company is authorized to issue 75,000 shares of 10%, $40 par preferred stock and 125,000 shares of $10 par common stock. Following is a narrative of selected transactions completed during the first month after incorporation. Prepare the appropriate journal entries. Aug. 1 At the first meeting of the incorporators, subscriptions for 30,000 shares of common stock at $12 per share were accepteD.4 Received a payment of $150,000 on the common stock subscription. 12 Issued 6,000 shares of preferred stock in exchange for $100,000 cash and land with a fair market value of $160,000. 26 Received the balance in full for the common stock subscription and issued the stock certificates. ​

When common stock is issued at a premium, Paid-In Capital in Excess of Par-Common Stock is credited.

In the stockholders' equity section of a corporation's balance sheet, preferred stock is listed before common stock because of its preferred claim to dividends and/or assets.

The total number of shares the corporate charter allows a corporation to issue is called authorized stock.

If there is an equal division of any excess dividends between the preferred shares and common shares, without any limit as to the amount the preferred shares may receive, the preferred stock is said to be nonparticipating.

A nominal amount determined by the corporation directors and assigned to no-par stock is called

Match the terms with the definitions. -The amount for which the stock can be sold on the open market.

Match the terms with the definitions. -The number of shares in the hands of stockholders.

In the stockholders' equity section of a corporation's balance sheet, stockholders' equity and paid-in capital are separated by source.

A form issued by the corporation that shows the name of the stockholder and the number of shares owned is called a

Prepare the appropriate general journal entries for the following treasury stock transactions of Aberdeen InC.Oct. 15 Purchased 7,000 shares of its $15 par common stock for $70,000 and placed the stock in the treasury. Dec. 1 Sold 2,000 shares of the treasury stock for $18,000 casH.Dec. 31 Sold the remaining treasury stock for $56,000 casH.​

If preferred dividends are limited to the stated dividend rate, the stock is said to be participating.

Match the terms with the definitions. -The difference between the par value and the price of a stock when the stock is issued at a price above par.

Double taxation is the process of taxing corporate income both to the company that earns it and to the stockholders of the company who receive it.

Preferred stock, on which the claims for unpaid dividends may be accumulated from year to year, is called

The Creative Interiors Corporation has 40,000 shares of $12 par common stock and 12,000 shares of $50 par, 5% preferred stock outstanding. Dividends totaling $156,000 are distributed to common and preferred shareholders combined. Compute the dividends to be distributed to preferred and common stockholders in total and per share under the following independent conditions. (Round to the nearest cent if necessary). a. The preferred stock is nonparticipating and noncumulative with no dividends distributed last year. b. The preferred stock is noncumulative and fully participating after the common shareholders have received dividends per share equal to the preferred stock. c. The preferred stock is cumulative and nonparticipating and no dividends were distributed last year.

A major disadvantage of the corporate form of organization is the manner in which corporations pay income taxes.

Match the terms with the definitions. -Those who form a corporation by filing an application with the state in which the company is to be incorporated.

The Vogel and Wallis Corporation is authorized to issue 15,000 shares of 10%, $50 par value preferred stock and 60,000 shares of $5 par value common stock. Following is a narrative of selected transactions completed during the first month after incorporation. June 1 The incorporators accepted subscriptions for 5,000 shares of preferred stock at $55 per sharE.8 The incorporators accepted subscriptions for 16,000 shares of common stock at $6 per sharE.12 Subscribers of the preferred stock paid $75,000 cash and land valued at $200,000 in full settlement of the subscriptions. 12 Subscribers of the common stock paid $21,000 cash, a $45,000 building, and equipment worth $30,000 in full settlement of the subscriptions. Required: Prepare the journal entries necessary for the transactions.

Stock certificates are issued when the corporation receives a capital stock subscription.