Multiple choice

Please use the following information for questions 1-2

Smith Corporation has two class of stock authorized: common stock and preferred stock. The common stock has a par value of $10 and the preferred stock has a par value of $5.

1) Smith issued 1,000 shares of the common stock for $20 per share. The necessary journal entry is:

A. Cash $20,000

Common Stock $20,000

B. Common Stock $20,000

Cash $20,000

C. Cash $20,000

Common Stock $10,000

PICIEOPV – Common Stock $10,000

D. Common Stock $10,000

PICIEOPV – Common Stock $10,000

Cash $20,000

2) Smith received land valued at $30,000 in exchange for 5,000 shares of preferred stock. The necessary journal entry is: 

A. Land $30,000

Preferred Stock $25,000

PICIEOPV $5,000

B. Land $30,000

Common Stock $25,000

PICIEOPV $5,000

C. Land $30,000

Cash $30,000

D. None of the above

3) Under the law, corporations are separate legal entities.

A. True

B. False

4) When a corporation purchases shares of its own stock, it is called:

A. Illegal

B. Fraud

C. Treasury Stock

D. Common Stock