Early in 2014, Jones Industries was formed with authorization toissue 125,000 shares of $20 par value common stock and 15,000shares of $100 par value cumulative preferredstock. During 2014, all the preferred stock was issuedat par, and 90,000 shares of common stock were sold for $35 pershare. The preferred stock is entitled to a dividendequal to 5 percent of its par value before any dividends are paidon the common stock.
During its first five years of business (2014 through 2018), thecompany earned income totaling $3,850,000 and paid dividends of 55cents per share each year on the common stockoutstanding.
On January 2, 2016, the company purchased 2,000 shares of itsown common stock in the open market for $80,000. OnJanuary 2, 2018, it reissued 1,200 shares of this treasury stockfor $60,000. The remaining 800 shares were still held in treasuryat December 31, 2018.
- Distinguish between paid-in capital and retained earnings of acorporation. Why is such a distinction useful?
- What are the major transactions and other financial activitiesthat impact the amount of paid-in capital of a corporation?
- Identify for each major type of transaction or activity whetherit increasesor decreasesthe amount of paid-in-capital.
