Homework Assignment #1

1. List 3 corporate characteristics that are considered to be advantages of the corporate form of organization. List 3 corporate characteristics that are considered to be disadvantages of the corporate from of organization. 2. What factors help determine the market value of stock? 3. What is the difference between par value, book value, and market value? 4. Why is common stock usually not issued at a price that is less than par value? 5. At the end of the year, Rose Corporation has legal capital totaling $4,000,000. What does this mean? Why do corporations have a legal capital requirement? 6. (a) List 3 ways that preferred stock differs from common stock. Why would a corporation issue BOTH common stock and preferred stock? (b) If 50,000 shares of 8%, $100-par value preferred stock is issued, what is the annual per share dividend? (c) Define the term dividends in arrears. (d) Describe how the cumulative feature of preferred stock works. Does common stock have a cumulative feature? Describe the participating feature of preferred stock. (e) How are dividends in arrears presented in the financial statements? Why would financial statement readers want to know if there are preferred dividends in arrears? (f) What is convertible preferred stock? Why would a corporation issue convertible preferred stock? What is callable preferred stock? Why would a corporation issue callable preferred stock? EXERCISES 1. During its first year of operations, Foyle Corporation had the following transactions pertaining to the issue of its common stock: Jan 10 Issued 70,000 shares of common stock for $5 per share cash. Jul 1 Issued 40,000 shares of common stock for $7 per share cash. Instructions (a) Give the journal entries to record the issue of stock in the attached journal assuming that the common stock has a par value of $5 per share. (b) Give the journal entries to record the issue of stock in the attached journal assuming the common stock has a stated value of $1 per share.