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Chapter 15: Question 1Q (page 809)
In the absence of restrictive provisions, what are the basic rights of stockholders of a corporation?
The fundamental rights of each shareholder (unless restriction to the contrary) are to share proportionally.
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Kellogg Company is the world’s leading producer of ready-to-eat cereal products. In recent years, the company has taken numerous steps aimed at improving its profitability and earnings per share. Presented below are some basic facts for Kellogg.
(in millions) | 2014 | 2013 |
Net sales | \(14,580 | \)14,792 |
Net income | 632 | 1,807 |
Total assets | 15,153 | 15,474 |
Total liabilities | 12,302 | 11,867 |
Common stock, $0.25 par value | 105 | 105 |
Capital in excess of par value | 678 | 626 |
Retained earnings | 6,689 | 6,749 |
Treasury stock, at cost | 3,470 | 2,999 |
Number of shares outstanding (in millions) | 358 | 363 |
Instructions
(Equity Transactions and Statement Preparation) On January 5, 2017, Phelps Corporation received a charter granting the right to issue 5,000 shares of \(100 par value, 8% cumulative and nonparticipating preferred stock, and 50,000 shares of \)10 par value common stock. It then completed these transactions.
Jan. 11 Issued 20,000 shares of common stock at \(16 per share.
Feb. 1 Issued to Sanchez Corp. 4,000 shares of preferred stock for the
following assets: equipment with a fair value of \)50,000; a factory
building with a fair value of \(160,000; and land with an
appraised value of \)270,000.
July 29 Purchased 1,800 shares of common stock at \(17 per share. (Use cost
method.)
Aug. 10 Sold the 1,800 treasury shares at \)14 per share.
Dec. 31 Declared a \(0.25 per share cash dividend on the common stock and
declared the preferred dividend.
Dec. 31 Closed the Income Summary account. There was a \)175,700 net
income.
Instructions
Where in the financial statements is preferred stock normally reported?
Buttercup Corporation issued 300 shares of \(10 par value common stock for \)4,500. Prepare Buttercup’s journal entry.
The following comment appeared in the notes of Colorado Corporation’s annual report: “Such distributions, representing proceeds from the sale of Sarazan, Inc., were paid in the form of partial liquidating dividends and were in lieu of a portion of the Company’s ordinary cash dividends.” How would a partial liquidating dividend be accounted for in the financial records?
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