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Discuss how the limited liability affects a corporation

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Reference no: EM132591336

During 2018, Company A has the following transactions involving its common and preferred stock:

  • Issued 20,000 shares of $8 par common stock for $26 a share; brings total shares outstanding to 50,000 shares
  • Issued 6,000 shares of $100 par, 6%, cumulative preferred stock for $150 per share 
  • When market value of the common stock reached $15 a share, Company A declared a 3-for-1 stock split, reducing the par value to $188 per share

The following is required:

Question 1. Prepare a journal entry for each transaction.

Question 2. Discuss the right of shareholders of capital stock for company A that they are entitled to.

Question 3. Company A is formed as a corporation and therefore, its shareholders have limited liability. Limited liability means that stockholders can only lose the amount of their investment. Discuss how this limited liability affects a corporation.

Reference no: EM132591336

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