Identify the major characteristics of a corporation. The major characteristics of a corporation are separate legal existence, limited liability of stockholders, transferable ownership rights, ability to acquire capital, continuous life, corporation management, government regulations, and additional taxes.
Record the issuance of common stock. When companies record the issuance of common stock for cash, they credit the par value of the shares to Common Stock. They record in a separate paid-in capital account the portion of the proceeds that is above or, below par value. When no-par common stock has a stated value, the entries are similar to those for par value stock. When no-par stock does not have a stated value, the entire proceeds are credited to Common Stock.
Explain the accounting for treasury stock. The cost method is generally used in accounting for treasury stock. Under this approach, Treasury Stock is debited at the price paid to reacquire the shares. The same amount is credited to Treasury Stock when the shares are sold. The difference between the sales price and cost is recorded in stockholders' equity accounts, not in income statement accounts.
Differentiate preferred stock from common stock. Preferred stock has contractual provisions that give it priority over common stock in certain areas. Typically, preferred stockholders have a preference as to (1) dividends and (2) assets in the event of liquidation. They usually do not have voting ...
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