Question

PROBLEM II: 45 POINTS (SHOW ALL WORK) Lemke Corporation produces and sells piano. The Stockholders' Equity accounts on January 1, 2017 are as follows: Common Stock, $10 par (100,000 shares authorized, 40,000 shares issued) PIC in Excess par- Common Stock Retained Earnings Treasury Stock (10,000 shares at cost) $400,000 200,000 900,000 200,000 The following transactions occurred during the year: 1/16 Declared a Cash Dividend of $0.80 per share on the Common Stock outstanding. Dividend will be paid on 2/16. Paid the Cash Dividend that was previously declared on 1/16. Reissued 5,000 shares of the Treasury Stock at $25 per share. Issued 15,000 shares of Common Stock for $30 per share. The directors declare a 2% stock dividend distributable on 9/13. The market value is $40 per share on this date. 2/16 3/19 4/13 8/03 9/13 Distributed the Stock Dividend declared on 8/03 11/17 Reissued the remaining 5,000 shares of Treasury Stock for $18 per share. 2/30 Declared a Cash Dividend of $0.90 per share on the Common Stock outstanding. The dividend will be paid on 1/30 12/31 Closed the $80,000 credit balance of the Income Summary account. 12/31 Closed the dividends accounts.

REQUIRED:  

(1)   Prepare the Journal Entries for the above transactions.

(2)   Prepare the Statement of Retained Earnings (In Good Form) as of 12/31/17.

Answer 1

1.

Date	Account Titles and Explanation	Debit	Credit
1/16	Dividends ($0.80 x 30000)	24000
	Dividends payable		24000
	(To record cash dividend declared)
2/16	Dividends payable	24000
	Cash		24000
	(To record payment of cash dividend)
3/19	Cash (5000 x $25)	125000
	Treasury stock (5000 x $20)		100000
	PIC from treasury stock		25000
	(To record sale of treasury stock)
4/13	Cash (15000 x $30)	450000
	Common stock		150000
	PIC in excess par-Common stock		300000
	(To record issue of common stock)
8/03	Retained Earnings (1000 x $40) *	40000
	Common Stock Dividend Distributable (1000 x $10)		10000
	PIC in excess par-Common stock		30000
	(To record declaration of stock dividend)
9/13	Common Stock Dividend Distributable	10000
	Common Stock		10000
	(To record distribution of stock dividend)
11/17	Cash (5000 x $18)	90000
	PIC from treasury stock	10000
	Treasury stock (5000 x $20)		100000
	(To record sale of treasury stock)
12/30	Dividends [$0.90 x (30000 + 5000 + 15000 + 1000 + 5000)]	50400
	Dividends payable		50400
	(To record cash dividend declared)
12/31	Income summary	80000
	Retained Earnings		80000
	(To close income summary to retained earnings)
12/31	Retained earnings	74400
	Dividends (24000 + 50400)		74400
	(To close dividends to retained earnings)

*Number of shares of stock dividend = 2% x (30000 + 5000 + 15000) = 2% x 50000 = 1000 shares

2.

Lemke Corporation
Statement of Retained Earnings
For the Year Ended December 31, 2017
Balance, January 1, 2017		900000
Add: Net income	80000
Less: Dividends	-114400
Net change during the year		-34400
Balance, December 31, 2017		865600