A Company Issues 1 Million Shares of Preferred Stock with a Par

question 129

Multiple Choice

A company issues 1 million shares of preferred stock with a par value of $2 and a market price of $26 per share. The issuance should be recorded as:

• A) a debit to Cash of $26 million and a credit to Preferred Stock of $26 million.
• B) a debit to Cash of $2 million and a credit to Preferred Stock of $2 million.
• C) a debit to Cash of $24 million, a debit to Treasury Stock of $2 million, and a credit to Preferred Stock of $26 million.
• D) a debit to Cash of $26 million, a credit to Preferred Stock of $2 million, and a credit to Additional Paid-in

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Definitions:

Annually

Occurring once every year.

Income Summary Account

An account used in the closing process to summarize the period's revenues and expenses before transferring the net income or loss to retained earnings.

Owner's Capital Account

Represents the total equity or investment that the owner has in the business, including initial investment and subsequent profits or losses.

Balance

The amount of money or value remaining in an account after accounting for debits and credits.