Company A

• Issued 20,000 shares of $8 par common stock for $26 a share; brings total shares outstanding to 50,000 shares
• Issued 6,000 shares of $100 par, 6%, cumulative preferred stock for $150 per share
• When market value of the common stock reached $15 a share, Company A declared a 3-for-1 stock split, reducing the par value to $188 per share

Account title and explinantion						Debit	Credit
Cash (20,000*26)						52,000
To Common Stock (20000*8)							160,000
To Additional paid in capital in excess of par (20000*18)							360,000
(being entry posted for issue of prefered stock)
Cash (6,000*150)						900,000
To Preferred Stock (6,000*100)							600,000
To Additional paid in capital in excess of par (6,000*50)							300,000
(being entry posted for issue of preffered stock)
In the case of stock splitt. The Par value is proportionally reduced. In
the case of 3 for 1 stock split par value per share will get reduced to 1/3
Revised par value is (8*1/3) equaling $2.67
Common stock (at 8)						400,000
To common stock at $2.67 par value							400,000

2. Discuss the right of shareholders of capital stock for company A that they are entitled to. 3. Company A is formed as a corporation and therefore, its shareholders have limited liability. Limited liability means that stockholders can only lose the amount of their investment. Discuss how this limited liability affects a corporation.