Chapter 15: Question 27Q (page 810)
For what reasons might a company restrict a portion of its retained earnings?
The most common reason for a company's retained earnings to be restricted is that it is behind on paying past-due dividends.
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(Entries for Stock Dividends and Stock Splits) The stockholders’ equity accounts of G.K. Chesterton Company have the following balances on December 31, 2017.
Common stock, \(10 par, 300,000 shares issued and outstanding \)3,000,000
Paid-in capital in excess of par—common stock 1,200,000
Retained earnings 5,600,000
Shares of G.K. Chesterton Company stock are currently selling on the Midwest Stock Exchange at $37.
Instructions
Prepare the appropriate journal entries for each of the following cases.
Discuss the propriety of showing:
Buttercup Corporation issued 300 shares of \(10 par value common stock for \)4,500. Prepare Buttercup’s journal entry.
Arantxa Corporation has outstanding 20,000 shares of \(5 par value common stock. On August 1, 2017, Arantxa reacquired 200 shares at \)80 per share. On November 1, Arantxa reissued the 200 shares at $70 per share. Arantxa had no previous treasury stock transactions. Prepare Arantxa’s journal entries to record these transactions using the cost method.
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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