Chapter 15: Question 6Q (page 810)
What is meant by par value, and what is its significance to stockholders?
The par value is a fixed and arbitraryamount per share attributed to the shares by the incorporators. It helps to determine the overall value of the shares issued.
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Faith Evans Corporation is a regional company which is an SEC registrant. The corporation’s securities are thinly traded on NASDAQ. Faith Evans Corp. has issued 10,000 units. Each unit consists of a \(500 par, 12% subordinated debenture and 10 shares of \)5 par common stock. The units were sold to outside investors for cash at \(880 per unit. Prior to this sale, the 2-week ask price of common stock was \)40 per share. Twelve percent is a reasonable market yield for the debentures, and therefore the par value of the bonds is equal to the fair value.
Instructions
(Preferred Stock Entries and Dividends) Otis Thorpe Corporation has 10,000 shares of \(100 par value, 8%, preferred stock and 50,000 shares of \)10 par value common stock outstanding at December 31, 2017.
Instructions
Answer the questions in each of the following independent situations.
Distinguish among: cash dividends, property dividends, liquidating dividends, and stock dividends.
Under IFRS, the amount of capital received in excess of par value would be credited to:
(a) Retained Earnings.
(b) Contributed Capital.
(c) Share Premium.
(d) Par value is not used under IFRS
Graves Mining Company declared, on April 20, a dividend of \(500,000 payable on June 1. Of this amount, \)125,000 is a return of capital. Prepare the April 20 and June 1 entries for Graves.
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