Question

1. Which of the following statements is not true?

Preferred dividends are tax deductible, therefore, preferred stock is similar to debt

Preferred stockholders receive dividends at a pre-specified rate.

Dividends in arrears and the current period’s preferred dividend must be paid before common shareholders can receive a dividend if the preferred stock is cumulative.

Preferred stock is unlike debt because preferred stockholders receive dividends in a given year only if they are declared.

2. Toledo Corporation reacquired 2,500 shares of its common stock for $15 per share on June 1. On October 1, Toledo reissued 1,000 shares of the stock for $19 per share. Which of the following would be included in the journal entry to record the reissue of the shares?

Debit to Cash for $47,500

Credit to Treasury Stock for $37,500

Credit to Common Stock for $15,000

Credit to Additional Paid-in Capital for $4,000

Answer 1

The incorrect statement is

Preferred dividends are tax deductible, therefore, preferred stock is similar to debt

Preferred Dividends are not tax deductible and hence, are not similar to debt in this manner

Rest of the statements are correct

2.The answer is

Credit to Additional Paid-in Capital for $4,000

The entry would include debit to cash by 1000*19 = $19000

Credit to Treasury stock 1000*15 = $15000

and credit to additional paid in capital by 1000*4 = $4000