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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Assume that Lily Corporation has outstanding 1,500 shares of $150 par callable preferred stock that were issued at $175 per share, and that no dividends are in arrears. If the call price is $185 per share, what journal entry will Lily make to record the recall of these shares?

To determine

Prepare a journal entry to record the recall of preferred stock.

Explanation

Preferred stock: The stock that provides a fixed amount of return (dividend) to its stockholder before paying dividends to common stockholders is referred as preferred stock.

Prepare a journal entry to record the recall of preferred stock:

Accounts title and explanationDebit in $Credit in $
Preferred stock, $150 par$225,000 
Additional paid-in capital on preferred stock$37,500 
Retained earnings ($277,500$225,000$37,500)$15,

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