Question

Kohler Corporation reports the following components of stockholders' equity on December 31, 2016: Common stock-$20 par value, 100,000 shares authorized, 55,000 shares issued and outstanding Paid-in capital in excess of par value, common stock Retained earnings Total stockholders' equity $1,100,000 70,000 400, 000 $1,570,000 In year 2017, the following transactions affected its stockholders' equity accounts. Jan. 1 Purchased 5,000 shares of its own stock at $20 cash per share Jan 5 Directors declared a $6 per share cash dividend payable on February 28 to the February 5 stockholders of record Feb. 28 Paid the dividend declared on January5 July 6 sold 1,875 of its treasury shares at $24 cash per share. Aug. 22 sold 3,125 of its treasury shares at $17 cash per share. Sept. 5 Directors declared a $6 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 $368,000 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.

Answer 1

1	Date	Account Tittle and Explanation	Debit	Credit
	Jan-01	Treasury Stock, Common (5000 X $20)	$   1,00,000
		Cash		$ 1,00,000
	Jan-05	Retained earnings (50,000 X $6 per share)	$   3,00,000
		Common dividend payable		$ 3,00,000
		(55,000 - 5,000 = 50,000 shares)
	Feb-28	Common dividend payable	$   3,00,000
		Cash		$ 3,00,000
	Jul-06	Cash (1875 X $24)	$       45,000
		Treasury Stock, Common (1875 X $20)		$     37,500
		Paid in capital, Treasury Stock		$        7,500
	Aug-22	Cash (3125 X $17)	$       53,125
		Paid in capital, Treasury Stock	$         7,500
		Retained earnings	$         1,875
		Treasury Stock, Common (3125 X $20)		$     62,500
		Note: Paid in capital, Treasury Stock can never had the ending balance
	Sep-05	Retained earnings (55000 shares X $6)	$   3,30,000
		Common dividend payable		$ 3,30,000
		5000 shares - (1875 shares + 3125 shares) = 0 shares
		55,000 shares - 0 shares = 55000 shares
	Oct-28	Common dividend payable	$   3,30,000
		Cash		$ 3,30,000
	Dec-31	Income Summary	$   3,68,000
		Retained Earnings		$ 3,68,000
2	Kohler corporation
	Statement of Retained Earnings
	For the year ended December 31, 2017
		Retained Earnings, December 31, 2016	$   4,00,000
	Add:	Net Income	$   3,68,000
			$   7,68,000
	Less:	Cash dividend declared (Jan 5 + Sep 5)	$   6,30,000
	Less:	Treasury stock reinsurance (Aug 22)	$         1,875
		Retained Earnings, December 31, 2017	$   1,36,125
3	Kohler corporation
	Statement of Stockholder's equity
	For the year ended December 31, 2017
		Common stock - $20 par value 1,00,000 shares authorizes, 55,000 shares issued and outstanding	$ 11,00,000	(Given)
	Add:	Paid in capital in excess of par value	$       70,000	(Given)
		Total contributed capital	$ 11,70,000
	Add:	Retained earnings	$   1,36,125	(calculated in part 2)
		Total Stockholder's equity	$ 13,06,125