FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Question
What distinct features does a corporation have? Please explain. 

 

2. What rights do shareholders of a corporation have? Please explain. 

 

3. Cervantes Corporation in Madrid, Spain is authorized to issue an unlimited number of ordinary shares and 100,000 €6 cumulative preference shares (i.e., a fixed amount of €6 cash dividend is distributed per sharebefore any dividend-distribution to ordinary shares). At January 1, 2018, it had the following opening equity balances:

 

– Preference shares: nil
– Ordinary Shares: 300,000 shares issued, €1.8 million
– Additional Contributed Capital: €50,000
Retained Earnings: €1,150,000
– Accumulated Other Comprehensive Income:€50,000.

 

During the year ended December 31, 2018, the company had the following share transactions:

 

Jan. 10 ​​Issued 100,000 ordinary shares at €8 per share.

July 1 ​​Issued 20,000 preferred shares at €50 per share.

Sept. 1 ​Declared 5% share dividends to ordinaryshareholders of record on September 15,distributable September 30. The price of the ordinary shares was €10 per share onSeptember 1, €12 per share on September 15, and €11 per share on September 30.

Nov. 1 ​​Issued 5,000 preference shares at €40 per share.

Dec. 24 ​Declared an annual cash dividend to preference shareholders of record on January 15, payable January 31.

Dec. 31 ​A loan agreement entered into on December 31 contains a restrictive covenant that limits the payment of future dividends to 15% of profit.

 

In addition, Cervantes reported profit of €392,000 for the year.

 

Instructions

 

A. Make journal entries of the above transactions, including any adjusting entries required at the end of 2018. 
B. Prepare the statement of changes in equity and the shareholders’ equity section of the statement of financial position, including any required note disclosure. 
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