Question

Nike Inc. is one of the world’s largest sellers of athletic footwear and athletic apparel. The following information is from Nike’s annual report.
Note 7: Redeemable Preferred Stock
NIAC is the sole owner of the Company’s authorized Redeemable Preferred Stock, $1 par value, which is redeemable at the option of NIAC or the Company at par value aggregating $0.3 million.
Note 8: Common Stock
The authorized number of shares of Class A Common Stock, no par value, and Class B Common Stock, no par value, are 110 million and 350 million, respectively. Each share of Class A Common Stock is convertible into one share of Class B Common Stock. Voting rights of Class B Common Stock are limited in certain circumstances with respect to the election of directors.

From the Balance Sheet
Class A Convertible Common Stock—98.1 and 99.1 million shares outstanding at May 31, Year 3 and Year 2, respectively. Class B Common Stock—168.0 and 169.5 million shares outstanding at May 31, Year 3 and Year 2, respectively.
From the Statement of Cash Flow


Required: Part A
1. How many shares of redeemable preferred stock were outstanding on May 31, Year 3? What is the par value of each share of preferred stock?
2. Suppose that Nike had sold 10,000 shares of preferred stock for $25 per share on June 1, Year 3. Prepare the journal entry to record this sale of preferred stock.
3. Assume the preferred stock described in requirement 2 pays a $0.10 per share annual dividend on May 15 each year. Prepare the journal entry to record the dividend payment on May 15, Year 3.
4. How many shares of common stock were outstanding on May 31, Year 3?
5. Explain why the number of shares outstanding might differ from the number of shares authorized or the number issued.
6. Why do some companies issue two classes of common stock?
7. Did Nike issue any common stock in the year ended May 31, Year 3? Why?

Required: Part B
Ignore your answers to all of Part A; instead assume the following hypothetical situation:
• Nike had 14,750,000 shares outstanding at the end of May Year 3. On this date, the balance in (a) the Common stock account was $147,500, (b) the Additional-paid-in capital account was $2,282,000, and (c) the Retained earnings account was $226,069,000.
• All cash dividends are paid in the year they are declared. Cash dividends in millions were $14.080, $240.830, and $0 in Year 6, Year 5, and Year 4, respectively.
• Net income in millions was $50.059, $49.589, and $45.080 for Year 6, Year 5, and Year 4, respectively.
• During the year ended May 31, Year 5, the company issued 17,250,000 common shares to the public as a stock dividend.
Determine the balances of Common stock, Additional paid-in capital, and Retained earnings accounts for the years ended May 31, Year 4, Year 5, and Year 6, respectively.


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  • CreatedSeptember 10, 2014
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