Test your understanding of the first half of this chapter by deciding whether each of the following statements is true or false.

a. The policy-making body in a corporation is called the board of directors.

b. The owner of 100 shares of preferred stock has greater voting rights than the owner of 100 shares of common stock.

c. Par-value stock is worth more than no-par stock.

d. Issuance of 1,000 shares of $5 par-value stock at $12 increases contributed capital by $12,000.

e. The issuance of no-par stock with a stated value is fundamentally different from issuing par-value stock.

f. A corporation issues its preferred stock in exchange for land and a building with a combined market value of $200,000. This transaction increases the corporation’s owners’ equity by $200,000 regardless of the assets’ prior book values.

g. Preferred stock is a riskier investment than common stock.

2. Adolfo Company has 2 classes of common stock. Only the Class A common stockholders are entitled to vote. The company’s balance sheet included the following presentation:

Stockholders’ Equity
Capital stock:
Class A common stock, voting, $1 par value, authorized and issued 1,260,000 shares	$ 1,260,000
Class B common stock, nonvoting, no par value, authorized and issued 46,200,000 shares	11,000,000
12,260,000
Additional paid-in capital	2,011,000
Retained earnings	872,403,000
$886,674,000

Required

a. Record the issuance of the Class A common stock. Use the Adolfo account titles.

b. Record the issuance of the Class B common stock. Use the Adolfo account titles.

c. How much of Adolfo’s stockholders’ equity was contributed by the stockholders? How much was provided by profitable operations? Does this division of equity suggest that the company has been successful? Why or why not?

d. Write a sentence to describe what Adolfo’s stockholders’ equity means.