Lorella Entered into a Common Share Subscription Contract for 1,000

question 158

Multiple Choice

Lorella entered into a common share subscription contract for 1,000 shares at a subscription price of $20.She paid 20% of the total price as a down payment and also paid the next two 20% instalments (she paid 60% in all) .Lorella then defaulted on the contract and refused to pay any more.Assuming the company must issue shares in proportion to the cash paid,the entry to record the default would include:

• A) dr. common shares $12,000
• B) dr. common shares subscribed $12,000
• C) dr. subscriptions receivable $8,000
• D) dr. common shares subscribed $20,000

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Definitions:

Perpetuity

A type of financial instrument that offers indefinite or endless payments to the holder, often used to represent the value of fixed interest stocks.

Compound Rate

The rate at which a sum of money grows exponentially over time, considering the reinvestment of interest or earnings.

Coupon Rate

Annually, the return rate on a bond, presented as a percentage of its nominal price.

Bond's Duration

Bond's duration measures the sensitivity of a bond's price to changes in interest rates, quantified as the weighted average time until the bond's cash flows are received.