Chapter 15: Question 2 Q (page 809)
Why is a preemptive right important?
As new shares are issued, and the company's ownership is diluted, preemptive rights prevent a shareholder from losing voting power.
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Explain how underwriting costs and accounting and legal fees associated with the issuance of stock should be recorded.
(Dividends and Stockholders’ Equity Section) Anne Cleves Company reported the following amounts in the stockholders’ equity section of its December 31, 2016, balance sheet.
Preferred stock, 10%, \(100 par (10,000 shares authorized, 2,000 shares issued) | \)200,000 |
Common stock, \(5 par (100,000 shares authorized, 20,000 shares issued) | 100,000 |
Additional paid-in capital | 125,000 |
Retained earnings | 450,000 |
Total | \)875,000 |
During 2017, Cleves took part in the following transactions concerning stockholders’ equity.
Instructions
(Recording the Issuance of Common and Preferred Stock) Kathleen Battle Corporation was organized on January 1, 2017. It is authorized to issue 10,000 shares of 8%, \(100 par value preferred stock, and 500,000 shares of no-par common stock with a stated value of \)1 per share. The following stock transactions were completed during the first year.
Jan. 10 Issued 80,000 shares of common stock for cash at \(5 per share.
Mar. 1 Issued 5,000 shares of preferred stock for cash at \)108 per share.
Apr. 1 Issued 24,000 shares of common stock for land. The asking price of
the land was \(90,000; the fair value of the land was \)80,000.
May 1 Issued 80,000 shares of common stock for cash at \(7 per share.
Aug. 1 Issued 10,000 shares of common stock to attorneys in payment of
their bill of \)50,000 for services rendered in helping the company
organize.
Sept. 1 Issued 10,000 shares of common stock for cash at \(9 per share.
Nov. 1 Issued 1,000 shares of preferred stock for cash at \)112 per share.
Instructions
Prepare the journal entries to record the above transactions.
Dave Matthew Inc. issues 500 shares of \(10 par value common stock and 100 shares of \)100 par value preferred stock for a lump sum of \(100,000.
Instructions
a) Prepare the journal entry for the issuance when the market price of the common shares is \)165 each and the market price of the preferred is \(230 each. (Round to the nearest dollar.)
b) Prepare the journal entry for the issuance when only the market price of the common stock is known and it is \)170 per share.
(Preferred Stock Dividends) Cajun Company has outstanding 2,500 shares of \(100 par, 6% preferred stock and 15,000 shares of \)10 par value common. The following schedule shows the amount of dividends paid out over the last 4 years.
Instructions
Allocate the dividends to each type of stock under assumptions (a) and (b). Express your answers in per share amounts using the format shown below
Assumptions | |||||
(a) Preferred, noncumulative And nonparticipating | (b) Preferred, cumulative, and fully participating | ||||
Year | Paid-out | Preferred | Common | Preferred | Common |
2012 | \(13,000 | ||||
2013 | \)26,000 | ||||
2014 | \(57,000 | ||||
2015 | \)76,000 |
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