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Chapter 11: Q2PSA (page 523)

Question:

Kohler Corporation reports the following components of stockholders’ equity on December 31, 2016:

Common stock—\(10 par value, 100,000 shares authorized,

40,000 shares issued and outstanding . . .. . . . . . . . . . . . . . . . . . . . . . . \)400,000

Paid-in capital in excess of par value, common stock . .. . . . . . . . . . . . . . . . 60,000

Retained earnings .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270,000

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \(730,000

In year 2017, the following transactions affected its stockholders’ equity accounts.

Jan. 1 Purchased 4,000 shares of its own stock at \)20 cash per share.

Jan. 5 Directors declared a \(2 per share cash dividend payable on February 28 to the February 5 stockholders of record.

Feb. 28 Paid the dividend declared on January 5.

July 6 Sold 1,500 of its treasury shares at \)24 cash per share.

Aug. 22 Sold 2,500 of its treasury shares at \(17 cash per share.

Sep. 5 Directors declared a \)2 per share cash dividend payable on October 28 to the September 25 stockholders of record.

Oct. 28 Paid the dividend declared on September 5.

Dec. 31 Closed the $388,000 credit balance (from net income) in the Income Summary account to Retained Earnings

Required

1. Prepare journal entries to record each of these transactions for 2017.

2. Prepare a statement of retained earnings for the year ended December 31, 2017.

3. Prepare the stockholders’ equity section of the company’s balance sheet as of December 31, 2017.

Short Answer

Expert verified

Answer

  1. Given Below.
  2. Retained earnings at year-end is $504,500.
  3. Total stockholder’s equity is $964,500.

Step by step solution

01

Recording of Entries

Step 1: Recording of Entries

Date

Account and Explanation

Debit($)

Credit ($)

January 01

Treasury Stock, Common

$80,000

Cash

$80,000

(Purchased 4,000 common shares at $20 per share)

January 05

Retained Earnings

$72,000

Common Dividend Payable

$72,000

(Declared $2 per common share cash dividend)

February 28

Common Dividend Payable

$72,000

Cash

$72,000

(Paid $2 per common share cash dividend)

July 06

Cash

$36,000

Treasury stock, common

$30,000

Paid in capital, treasury stock

$6,000

(Treasury stock issued)

August 22

Cash

$42,500

Paid-In Capital, Treasury Stock

$6,000

Retained earnings

$1,500

Treasury stock, common

$50,000

(Treasury stock issued)

September 05

Retained Earnings

$80,000

Common Dividend Payable

$80,000

(Declared $2 per common share cash dividend)

October 28

Common Dividend Payable

$80,000

Cash

$80,000

(Paid $2 per common share cash dividend)

December 31

Income Summary

$388,000

Retained earnings

$388,000

(Net Income for the year transferred)

CashDividend(January5)=(NumberofStock-StockRepurchase)×CashDividend=(40,000-4,000)×$2=$72,000CashDividend(Sep5)=(NumberofStockonJan5+StockRepurchase)×CashDividend=(36,000+1,500+2,500)×$2=$80,000

02

Statement of Retained Earnings

Kohler Corporation

Statement of Retained Earnings

For Year Ended December 31, 2017

Amount

Retained Earnings as at December 31, 2016

$ 270,000

Add: Net Income for the year

388,000

Less: Loss of sale of treasury stock

(1,500)

Less: Cash Dividend (72,000+80,000)

(152,000)

Retained Earnings as at December 31, 2017

$ 504,500

03

Stockholders’ Equity    

Amount

Common stock—$10 par value, 100,000 shares authorized,

40,000 shares issued and outstanding

$ 400,000

Paid-in capital in excess of par value, common stock

60,000

Retained Earnings

$ 504,500

Total stockholders’ equity

$ 964,500

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Most popular questions from this chapter

Question:

The equity sections from Atticus Group’s 2016 and 2017 year-end balance sheets follow Stockholders’ Equity (December 31, 2016)

Common stock—\(4 par value, 100,000 shares

authorized, 40,000 shares issued and outstanding . .. . . . . . . . . . \)160,000

Paid-in capital in excess of par value, common stock .. . . . . . . . . . . . . . . . 120,000

Retained earnings .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320,000

Total stockholders’ equity .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \(600,000

Stockholders’ Equity (December 31, 2017)

Common stock—\)4 par value, 100,000 shares

authorized, 47,400 shares issued, 3,000 shares in treasury . .. . . . . . . \(189,600

Paid-in capital in excess of par value, common stock . . . . . .. . . . . . . . . . . . 179,200

Retained earnings (\)30,000 restricted by treasury stock) .. . . . . . . . . . . . . 400,000

768,800

Less cost of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30,000)

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . \(738,800

The following transactions and events affected its equity during year 2017.

Jan. 5 Declared a \)0.50 per share cash dividend, date of record January 10.

Mar. 20 Purchased treasury stock for cash.

Apr. 5 Declared a \(0.50 per share cash dividend, date of record April 10.

July 5 Declared a \)0.50 per share cash dividend, date of record July 10.

July 31 Declared a 20% stock dividend when the stock’s market value was \(12 per share.

Aug. 14 Issued the stock dividend that was declared on July 31.

Oct. 5 Declared a \)0.50 per share cash dividend, date of record October 10.

Required

1. How many common shares are outstanding on each cash dividend date?

2. What is the total dollar amount for each of the four cash dividends?

3. What is the amount of the capitalization of retained earnings for the stock dividend?

4. What is the per share cost of the treasury stock purchased?

5. How much net income did the company earn during year 2017?

Foxburo Company expects to pay a \(2.34 per share cash dividend this year on its common stock. The current market value of Foxburo stock is \)32.50 per share. Compute the expected dividend yield on the Foxburo stock. Would you classify the Foxburo stock as a growth or an income stock? Explain

Question: Soltech Company’s common stock is currently selling on a stock exchange at \(90 per share, and its current balance sheet shows the following stockholders’ equity section.

Preferred stock—8% cumulative, \)___ par value, 1,500 shares authorized, issued, and outstanding

\( 375,000

Common stock—\)___ par value, 18,000 shares authorized, issued, and outstanding

900,000

Retained earnings

1,125,000

Total stockholders’ equity

2,400,000

Required

  1. What is the current market value (price) of this corporation’s common stock?
  2. What are the par values of the corporation’s preferred stock and its common stock?
  3. If no dividends are in arrears, what is the book value per share of common stock? (Round per share value to the nearest cent.)
  4. If two years’ preferred dividends are in arrears, what is the book value per share of common stock? (Round per share value to the nearest cent.)
  5. If two years’ preferred dividends are in arrears and the board of directors declares cash dividends of $100,000, what total amount will be paid to the preferred and to the common shareholders? What is the amount of dividends per share for the common stock? (Round per share value to the nearest cent.)

Analysis Component

6.Discuss why the book value of common stock is not always a good estimate of its market value.

Rodriguez Corporation issues 19,000 shares of its common stock for \(152,000 cash on February 20.

Prepare journal entries to record this event under each of the following separate situations.

  1. The stock has a \)2 par value.
  2. The stock has neither par nor stated value.
  3. The stock has a $5 stated value

Balthus Corp. reports the following components of stockholders’ equity on December 31, 2016:

Common stock—\(1 par value, 320,000 shares authorized,

200,000 shares issued and outstanding . .. . . . . . . . . . . . . . . . . . . . \) 200,000

Paid-in capital in excess of par value, common stock . . . . . . . . . . . . . . . . 1,400,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 2,160,000

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . \(3,760,000

It completed the following transactions related to stockholders’ equity in year 2017:

Jan. 10 Purchased 40,000 shares of its own stock at \)12 cash per share.

Mar. 2 Directors declared a \(1.50 per share cash dividend payable on March 31 to the March 15 stockholders of record.

Mar. 31 Paid the dividend declared on March 2.

Nov. 11 Sold 24,000 of its treasury shares at \)13 cash per share.

Nov. 25 Sold 16,000 of its treasury shares at \(9.50 cash per share.

Dec. 1 Directors declared a \)2.50 per share cash dividend payable on January 2 to the December 10 stockholders of record.

Dec. 31 Closed the $1,072,000 credit balance (from net income) in the Income Summary account to Retained Earnings.

Required

1. Prepare journal entries to record each of these transactions for 2017.

2. Prepare a statement of retained earnings for the year ended December 31, 2017.

3. Prepare the stockholders’ equity section of the company’s balance sheet as of December 31, 2017.
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