Question

Kohler Corporation reports the following components of stockholders’ equity on December 31, 2016:
Common stock—$20 par value, 100,000 shares authorized,
45,000 shares issued and outstanding $ 900,000
Paid-in capital in excess of par value, common stock 70,000
Retained earnings 400,000
Total stockholders' equity $ 1,370,000
In year 2017, the following transactions affected its stockholders’ equity accounts.
Jan. 1 Purchased 4,500 shares of its own stock at $15 cash per share.
Jan. 5 Directors declared a $4 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 1,688 of its treasury shares at $19 cash per share.
Aug. 22 Sold 2,812 of its treasury shares at $12 cash per share.
Sept. 5 Directors declared a $4 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 $428,000 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.
Prepare a statement of retained earnings for the year ended December 31, 2017. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

Answer and Explanation:

According to the scenario, computation of the given data are as follow:-

1. Journal Entries

On Jan 1

Treasury stock A/c ($15 × 4,500)   Dr.       $67,500  

        To Cash A/c     $67,500

(Being the purchase of own shares is recorded)

On Jan 5

Retained earnings A/c Dr.   {(45,000 - 4,500) × $4 }        $162,000

    To Dividends payable A/c     $162,000

(Being the dividend payable is recorded)                          

On Feb 28

Dividends payable A/c  Dr.  $162,000

    To Cash A/c  $162,000

(Being the dividend is paid)                        

On July 6

Cash  ($19 × 1,688)    Dr.   $32,072  

    To Treasury stock A/c ($15 × 1,688)    $25,320

   To paid in capital in excess of treasury stock A/c      $6,752                           (Being the sale of treasury shares is recorded)                            

On Aug 22

Cash A/c ($12 × 2,812)                                            Dr.  $33,744

Paid in capital in excess of par-treasury stock     Dr.  $6,752

Retained earnings                                                 Dr.  $1,684

    To Treasury stock A/c ($15 × 2,812)    $42,180

(To Record the sold treasury shares)                            

On Sep 5

Retained earnings A/c($4  × 45,000) Dr.  $180,000

    To Dividends payable A/c  $180,000

(Being the dividend is declared)                            

On Oct 28

Dividends payable A/c  Dr.  $180,000

     To Cash A/c  $180,000

(Being the dividend is paid)  

On Dec 31

Income summary    Dr.  $428,000

      To Retained earnings A/c  $428,000

(Being the income summary account is closed)

2. Statement of Retained Earnings

Particular            Amount($)  Total Amount($)

Opening balance $400,000  

Add - Net income $428,000 $828,000

Less - treasury stock $1,684  

Less - cash dividend $342,000  ($343,684)

Closing balance                      $484,316

3. Stockholders Equity Section of the Balance Sheet

Particular  Amount ($)

Common stock $900,000

Add - Paid in capital in excess of par-common stock $70,000

Total contributed capital $970,000

Add - Retained earnings $484,316

Total equity of stockholders 1,454,316