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A preference share is described as "$1 preferred, $100 par" issued at $105. What does the "$1" refer to, and does it affect the issuance entry?
AThe annual dividend per share; it does not affect the issuance entry
BThe par value per share; it sets the share capital credit
CThe premium per share; it sets the share premium credit
DThe issue price per share; it sets the cash debit
Answer & Solution
Correct answer: A. The annual dividend per share; it does not affect the issuance entry
1. Preference share descriptions often add a dollar or percentage figure.
2. That figure states the cash dividend per share (here $1, equal to 1% of $100 par).
3. Par ($100) drives the share capital credit; issue price ($105) drives the cash debit.
4. The $1 dividend rate plays no part in the issuance journal entry.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §6.3 "Issuing Stock for Cash", p.248_
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