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3. Common stock is the residual corporate interest that bears the
ultimate risks of loss.
4. Earned capital consists of additional paid-in capital and
retained earnings.
5. True no-par stock should be carried in the accounts at issue
price without any additional paid-in capital reported.
6. Companies allocate the proceeds received from a lump-sum
sale of securities based on the securities’ par values.
7. Companies should record stock issued for services or noncash
property at either the fair value of the stock issued or the fair value of
the consideration received.
8. Treasury stock is a company’s own stock that has been
reacquired and retired
9. The cost method records all transactions in treasury shares at
their cost and reports the treasury stock as a deduction from capital
stock.
10. When a corporation sells treasury stock below its cost, it
usually debits the difference between cost and selling price to Paid-in
Capital from Treasury Stock.
11. Participating preferred stock requires that if a company fails
to pay a dividend in any year, it must make it up in a later year before
paying any common dividends.
12. Callable preferred stock permits the corporation at its option
to redeem the outstanding preferred shares at stipulated prices.
13. The laws of some states require that corporations restrict their
legal capital from distribution to stockholders.