Question

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

Common stock—$10 par value, 100,000 shares authorized, 50,000 shares issued and outstanding	$500,000
Paid-in capital in excess of par value, common stock	80,000
Retained earnings	400,000
Total stockholders' equity	$980,000

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 $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 1,500 of its treasury shares at $24 cash per share.
Aug.	22	Sold 2,500 of its treasury shares at $17 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 $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.

• Record the declaration of a cash dividend of $4 per share.
• Record the payment of the cash dividend.
• Record the reissue of 1,500 shares of the treasury stock for $24 cash per share.
• Record the reissue of 2,500 shares of the treasury stock for $17 cash per share.
• Record the declaration of a cash dividend of $4 per share.
• Record the payment of the cash dividend.
• Record the entry to close the income summary account having a credit balance of $368,000.

Answer 1

Ans-1- Preparing journal entries to record each of these transactions for 2017:-

Date	Account Title and Explanation	Debit ($)	Credit ($)
Jan.1	Treasury Stock, Common	80,000
	Cash		80,000
	(To record the purchase of treasury stock 4,000*$20)
Jan.5	Retained Earnings	184,000
	Common dividends payable		184,000
	(To record the declaration of a cash dividend of $4 per share)
Feb 28	Common dividends payable	184,000
	Cash		184,000
	(To record the payment of the cash dividend)
July 6	Cash (1,500*$24)	36,000
	Treasury stock, common (1,500*$20)		30,000
	Paid-in capital , Treasury stock (1,500*$4)		6,000
	(To record the reissue of 1,500 shares of the treasury stock for $24 cash per share)
Aug 22	Cash (2,500*$17)	42,500
	Paid-in capital, Treasury stock	6,000
	Retained Earnings	1,500
	Treasury stock, Common (2,500*$20)		50,000
	(To record the reissue of 2,500 shares of the treasury stock for $17 cash per share
Sep. 5	Retained earnings (50,000*$4)	200,000
	Common dividends payable		200,000
	(To record the declaration of a cash dividend of $4 per share)
Oct.28	Common dividend payable	200,000
	Cash		200,000
	(To record the payment of the cash dividend)
Dec.31	Income summary	368,000
	Retained earnings		368,000
	(To record the entry to close the income summary account having a credit balance of $368,000)

2- Preparing statement of retained earnings account:-

Kohler Corporation

Statement of retained earnings

For the year ended December 31,2017

Particulars	Amount ($)
Retained earnings Dec.31,2016	400,000
Add: Net income	368,000
	768,000
Less: Cash dividend declared	(384,000)
Less:Treasury stock reissuances	(1,500)
Retained earnings, Dec.31,2017	$382,500

3- Preparing equity section of balance sheet:-

Kohler Corporation

Stockholder's equity section of balance sheet

For the year ended December 31, 2017

Particulars	Amount ($)
Common Stock-$10 par value	500,000
Paid-in capital in excess of par	80,000
Total contributed capital	580,000
Retained earnings	382,500
Total stockholder's equity	962,500

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