Following is a list describing various features of

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Description

1. Following is a list describing various features of the corporate form of
organization. Match each feature with an appropriate descriptive term,
and note whether this feature is an advantage or disadvantage of the
corporate entity.

TERM
The ability of a company to
raise capital by issuing
shares to the public
The ability of an existing
shareholder to sell shares
without corporate approval
The ability of the
government to tax
corporate earnings and
dividends
Periodic regulatory filings

The ability of different
individuals to pool
resources
The inability of creditors to
pursue individual
shareholders
The life of the entity can
exceed the life of the
shareholders
TERMS:
Limited Liability
Double Taxation
Perpetual Existence
Transferability of
Ownership
Mutual Ownership
Cost of Regulation
Publicly Traded

ADVANTAGE OR
DISADVANTAGE

Publicly Traded

Advantage

2. Evaluate the following list, and decide if each described attribute more
likely relates to a common stock or preferred stock issue.
Common
The stock is described as 6%,
cumulative

Preferred

✓

The stock includes voting rights
The stock is last in line in the event
of liquidation
The stock is convertible
The stock ordinarily pays a fixed
dividend
The stock may be subject to
significant appreciation
The stock has a "call price"
The stock has a mandatory
redemption date

3. Prepare journal entries to record each of the following independent stock
issue situations.
(a)
Sherri Hui Corporation issued 100,000 shares of $1
par value common stock. The issue price was $30 per
share.
(b)

Ariana Corporation issued 50,000 shares of no par
common stock for $10 per share.

(c)

Laser Golf issued 40,000 shares of $100 par value
preferred stock. The issue price was $102 per share.

(d)

Charleston Industries issued 5,000 shares of $5 par
value common stock for land with a fair value of
$75,000.
4. Krull Corporation presented the following selected information. The company
has a calendar year end.

Before considering the effects of dividends, if any, Krull’s net income for 20X7
was $2,500,000.
Before considering the effects of dividends, if any, Krull’s net income for 20X8
was $3,000,000.
Krull declared $750,000 of dividends on November 15, 20X7. The date of record
was January 15, 20X8. The dividends were paid on February 1, 20X8.
Stockholders’ equity, at January 1, 20X7, was $5,000,000. No transactions
impacted stockholders’ equity throughout 20X7 and 20X8, other than the impact of
earnings and dividends on retained earnings.
(a
)

Prepare journal entries, if needed, to reflect the dividend declaration, the date
of record, and the date of payment.

(b
)
(c
)
(d
)

How much was net income for 20X7 and 20X8?
How much was total equity at the end of 20X7 and 20X8?
Is total "working capital" reduced on the date of declaration, date of record,
and/or date of payment?

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