Question

Retained Earnings: Transactions and Statement

The stockholders’ equity of Elsworth Corporation at January 1 is shown below:

5 Percent preferred stock, $100 par value, 10,000 shares authorized;
4,000 shares issued and outstanding	$400,000
Common stock, $5 par value, 200,000 shares
authorized; 50,000 shares issued and outstanding	$250,000
Paid-in capital in excess of par value—Preferred stock	40,000
Paid-in capital in excess of par value—Common stock	300,000
Retained earnings	656,000
Total Stockholders’ Equity	$1,646,000

The following transactions, among others, occurred during the year:

Apr.	1	Declared a 100 percent stock dividend on all outstanding shares of common stock. The market value of the stock was $16 per share.
	15	Issued the stock dividend declared on April 1.
Dec.	7	Declared a two percent stock dividend on all outstanding shares of common stock. The market value of the stock was $18 per share.
	17	Issued the stock dividend declared on December 7.
	20	Declared the annual cash dividend on the preferred stock and a cash dividend of $1.20 per common share, payable on January 15 to common stockholders of record on December 31.

Required

a. Prepare journal entries to record the foregoing transactions.

General Journal
Date	Description	Debit	Credit
Apr.01	AnswerStock DividendsStock Dividends DistributableCommon StockCash DividendsDividends Payable - Preferred StockDividends Payable - Common Stock	Answer	Answer
	AnswerStock DividendsStock Dividends DistributableCommon StockCash DividendsDividends Payable - Preferred StockDividends Payable - Common Stock	Answer	Answer
	Declared stock dividend on common stock.
Apr.15	AnswerStock DividendsStock Dividends DistributableCommon StockCash DividendsDividends Payable - Preferred StockDividends Payable - Common Stock	Answer	Answer
	AnswerStock DividendsStock Dividends DistributableCommon StockCash DividendsDividends Payable - Preferred StockDividends Payable - Common Stock	Answer	Answer
	Issued common shares as common stock declared as a dividend.
Dec.07	AnswerStock DividendsStock Dividends DistributableCommon StockCash DividendsDividends Payable - Preferred StockDividends Payable - Common Stock	Answer	Answer
	AnswerStock DividendsStock Dividends DistributableCommon StockCash DividendsDividends Payable - Preferred StockDividends Payable - Common Stock	Answer	Answer
	Paid-in-Capital in Excess of Par Value - Common Stock.	Answer	Answer
	Declared a cash dividend on common stock outstanding.
Dec.17	AnswerStock DividendsStock Dividends DistributableCommon StockCash DividendsDividends Payable - Preferred StockDividends Payable - Common Stock	Answer	Answer
	AnswerStock DividendsStock Dividends DistributableCommon StockCash DividendsDividends Payable - Preferred StockDividends Payable - Common Stock	Answer	Answer
	Issued Shares of common stock declared as a dividend.
Dec.20	AnswerStock DividendsStock Dividends DistributableCommon StockCash DividendsDividends Payable - Preferred StockDividends Payable - Common Stock	Answer	Answer
	AnswerStock DividendsStock Dividends DistributableCommon StockCash DividendsDividends Payable - Preferred StockDividends Payable - Common Stock	Answer	Answer
	Dividends Payable - Common Stock	Answer	Answer
	Declared cash dividend on preferred and common stock.

b. Prepare a statement of retained earnings. Net income for the year is $300,000.

Do not use negative signs with your answers.

ELSWORTH CORPORATION Statement of Retained Earnings For the Year Ended December 31
	Retained Earnings, January 1		Answer
	AnswerNet IncomeRetained Earnings, December 31Cash Dividends Declared		Answer
			Answer
	AnswerNet IncomeRetained Earnings, December 31Cash Dividends Declared	Answer
	Stock Dividends Declared	Answer	Answer
	AnswerNet IncomeRetained Earnings, December 31Cash Dividends Declared		Answer

Answer 1

a.

General Journal
Date	Description	Debit	Credit
Apr. 01	Stock dividends (100% x 50000 x $5)	250000
	Stock dividends distributable		250000
	Declared stock dividend on common stock.
Apr. 15	Stock dividends distributable	250000
	Common stock		250000
	Issued common shares as common stock declared as a dividend.
Dec. 07	Stock dividends (2% x 100000 x $18)	36000
	Stock dividends distributable (2% x 100000 x $5)		10000
	Paid-in-Capital in Excess of Par Value - Common Stock		26000
	Declared a cash dividend on common stock outstanding.
Dec. 17	Stock dividends distributable	10000
	Common stock		10000
	Issued Shares of common stock declared as a dividend.
Dec. 20	Cash dividends	142400
	Dividends Payable - Preferred Stock (5% x $400000)		20000
	Dividends Payable - Common Stock [$1.20 x (50000 + 50000 + 2000)]		122400
	Declared cash dividend on preferred and common stock.

b.

ELSWORTH CORPORATION
Statement of Retained Earnings
For the Year Ended December 31
Retained Earnings, January 1		656000
Net income		300000
		956000
Cash dividends declared	142400
Stock dividends declared	286000	428400
Retained Earnings, December 31		527600