Question

Problem 11-2A Cash dividends, treasury stock, and statement of retained earnings LO C3, P2, P3 Kohler Corporation reports the following components of stockholders' equity at December 31, 2018 Common stock-$15 par value, 100,000 shares authorized 50,000 shares issued and outstanding Paid-in capital in excess of par value, common stock Retained earnings Total stockholders' equity $ 750,000 80,000 400,00 $1.230,000 During 2019, the following transactions affected its stockholders' equity accounts Jan. Jan. Feb. July Aug. Sept. Oct. Dec. 2. Purchased 6,000 shares of its own stock at $25 cash per share. 5 Directors declared a $2 per share cash dividend payable on February 28 to the February 5 stockholders of record. 28 Paid the dividend declared on January 5. Sold 2.250 of its treasury shares at $29 Cash per share. 22 Sold 3.750 of its treasury shares at $22 cash per share. 5 Directors declared a $2 per share cash dividend payable on October 28 to the September 25 stockholders of record 23 Paid the dividend declared on September 5. 31 Closed the $385,000 credit balance (from net income) in the Income Summary account to Retained Earnings. Required: 1. Prepare journal entries to record each of these transactions 2. Prepare a statement of retained earnings for the year ended December 31, 2019 3. Prepare the stockholders' equity section of the company's balance sheet as of December 31, 2019

Answer 1

Solution 1:

Kohler Corporation - Journal Entries
Date	Particulars	Debit	Credit
1-Jan	Treasury Stock A/c Dr	$150,000.00
	To Cash		$150,000.00
	(Being 6000 shares of treasury stock purchased at $25 per share)
5-Jan	Retained Earnings Dr	$88,000.00
	To Dividend payable [(50000 - 6000)*2]		$88,000.00
	(Being dividend declared)
28-Feb	Dividend Payable Dr	$88,000.00
	To Cash		$88,000.00
	(Being dividend paid)
6-Jul	Cash A/c Dr (2250*29)	$65,250.00
	To Treasury Stock (2250*25)		$56,250.00
	To Additional Paid in Capital (2250*$4)		$9,000.00
	(Being 2250 shares of treasury stock sold at $29 per share)
22-Aug	Cash A/c Dr (3750*22)	$82,500.00
	Additional Paid in Capital A/c Dr	$9,000.00
	Retained Earnings Dr (Balancing figure)	$2,250.00
	To Treasury Stock (3750*$25)		$93,750.00
	(Being 3750 shares of treasury stock sold at $22 per share)
5-Sep	Retained Earnings Dr	$100,000.00
	To Dividend payable (50000*2)		$100,000.00
	(Being dividend declared)
28-Oct	Dividend Payable Dr	$100,000.00
	To Cash		$100,000.00
	(Being dividend paid)
31-Dec	Income summary Dr	$388,000.00
	To Retained Earnings		$388,000.00
	(Being income transferred to retained earnings)

Solution 2:

Kohler Corporation - Statement of Retained Earnings on 31.12.2019
Particulars	Amount
Opening balance	$400,000.00
Add: Income for 2019	$388,000.00
	$788,000.00
Less: Dividend Paid (44000*$2 + 50000*$2)	-$188,000.00
Less: Loss on sale of treasury stock	-$2,250.00
Ending balance of Retained Earnings	$597,750.00

Solution 3:

Stockholder Equity Section of Balance sheet
Kohler Corporation at December 31, 2019
Particulars	Amount
Stockholders Equity:
Common stock—$15 par value, 100,000 shares authorized, 50,000 shares issued and outstanding	$750,000.00
Paid-in capital in excess of par value, common stock	$80,000.00
Total contributed Capital	$830,000.00
Retained Earnings	$597,750.00
Total Stockholder's Equity	$1,427,750.00