b.The par value methodrecords all treasury stock transactions at parvalue and reports the amount as a deduction from issued shares ofthe same class of stock. The method is discussed in Appendix 15A.E. Characteristics of Preferred Stock: Usually issued with a par value.Sometimes, preferred stock has more debt characteristics than equitycharacteristics. The most common features are:
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1.Preference as to dividends. Preferred stockholders are paid beforecommon stockholders.a.The dividend is expressed as a percentage of par value.b.Cumulative preferred stock—dividends in arrears must be paidbefore the current year's dividend is paid to either preferred orcommon stockholders.c.Participating—preferred stockholders share ratably with commonstockholders in any dividends beyond the prescribed rate.2.Preference as to assets in the event of liquidation.3.Convertible into common stock.4.Callable at the option of the corporation–at set prices5.Nonvoting6.Debt characteristics—some preferred stock has all the characteristics ofdebt (fixed return, no vote, and redeemable).a.The SEC requires that redeemable preferred stock be excludedfrom stockholders' equity.F.Paid-in Capital Presentation.1.Paid-in Capital arises from the sale of capital stock.2.The basic transactions affecting additional paid-in capital are:Additional Paid-in Capitala.Discounts on stock issuedb.Sale of treasury stock below cost.c.Absorption of a deficit in quasireorganization.d.Declaration of a liquidatingdividend.a.Premiums on stock issued.b.Sale of treasury stock above cost.c.Additional capital arising in a quasireorganizationd.Additional assessments.e.Conversion of convertible securities.f.Declaration of a small stock dividend.
G.Appendix 15 A.Par Value Method.1.Acquisitions of Treasury Stock are recorded at the par or stated value ofthe stock reacquired and reported as a deduction from issued shares ofthe same class of stock.Teaching TipIllustration 15-5provides a numerical example of the journal entries under the par value method.
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