Question

Entries for Selected Corporate Transactions

Morrow Enterprises Inc. manufactures bathroom fixtures. Morrow Enterprises’ stockholders’ equity accounts, with balances on January 1, 20Y6, are as follows:

Common Stock, $10 stated value (550,000 shares authorized, 360,000 shares issued)	$3,600,000
Paid-In Capital in Excess of Stated Value-Common Stock	700,000
Retained Earnings	8,170,000
Treasury Stock (36,000 shares, at cost)	504,000

The following selected transactions occurred during the year:

Jan. 22.	Paid cash dividends of $0.12 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $38,880.
Apr. 10.	Issued 70,000 shares of common stock for $1,120,000.
June 6.	Sold all of the treasury stock for $17 per share.
July 5.	Declared a 5% Stock dividend on common stock, to be capitalized at the market price of the stock, which is $18 per share.
Aug. 15.	Issued shares of stock for the stock dividend declared on July 5.
Nov. 23.	Purchased 23,000 shares of treasury stock for $19 per share.
Dec. 28.	Declared a $0.15-per-share dividend on common stock.
31.	Closed the credit balance of the income summary account, $8,497,000.
31.	Closed the two dividends accounts to Retained Earnings.

Required:

1. The January 1 balances have been entered in T accounts for the stockholders' equity accounts. Record the above transactions in the T accounts and provide the December 31 balance where appropriate. If required, round to one decimal place.

Common Stock
		Jan. 1 Bal.	3,600,000
		Apr. 10
		Aug. 15
		Dec. 31 Bal.

Paid-In Capital in Excess of Stated Value-Common Stock
		Jan. 1 Bal.	700,000
		Apr. 10	420,000
		July 5
		Dec. 31 Bal.

Retained Earnings
Dec. 31		Jan. 1 Bal.	8,170,000
		Dec. 31	8,497,000
		Dec. 31 Bal.

Treasury Stock
Jan. 1 Bal.	504,000	June 6
Nov. 23	437,000
Dec. 31 Bal.

Paid-In Capital from Sale of Treasury Stock
		June 6

Stock Dividends
July 5		Dec. 31

Cash Dividends
Dec. 28		Dec. 31

2. Journalize the entries to record the transactions. For a compound transaction, if an amount box does not require an entry, leave it blank.

Jan. 22. Paid cash dividends of $0.12 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $38,880.

Date	Account	Debit	Credit
Jan. 22	Cash Dividends Payable
	Cash

Apr. 10. Issued 70,000 shares of common stock for $1,120,000.

Date	Account	Debit	Credit
Apr. 10	Cash
	Common Stock
	Paid-In Capital in Excess of Stated Value-Common Stock

June 6. Sold all of the treasury stock for $17 per share.

Date	Account	Debit	Credit
June 6	Cash
	Treasury Stock
	Paid-In Capital from Sale of Treasury Stock

July 5. Declared a 5% stock dividend on common stock, to be capitalized at the market price of the stock, which is $18 per share.

Date	Account	Debit	Credit
July 5	Stock Dividends
	Stock Dividends Distributable
	Paid-In Capital in Excess of Stated Value-Common Stock

Aug. 15. Issued shares of stock for the dividend declared on July 5.

Date	Account	Debit	Credit
Aug. 15	Stock Dividends Distributable
	Common Stock

Nov. 23. Purchased 23,000 shares of treasury stock for $19 per share.

Date	Account	Debit	Credit
Nov. 23	Treasury Stock
	Cash

Dec. 28. Declared a $0.15-per-share dividend on common stock.

Date	Account	Debit	Credit
Dec. 28	Cash Dividends
	Cash Dividends Payable

Dec. 31. Closed the credit balance of the income summary account, $8,497,000.

Date	Account	Debit	Credit
Dec. 31	Income Summary
	Retained Earnings

Dec. 31. Closed the two dividends accounts to Retained Earnings.

Date	Account	Debit	Credit
Dec. 31	Retained Earnings
	Stock Dividends
	Cash Dividends

3. Prepare a retained earnings statement for the year ended December 31, 20Y6.

Morrow Enterprises Inc. Retained Earnings Statement For the Year Ended December 31, 20Y6
Retained Earnings, January 1, 20Y6
Net Income
Cash Dividends
Stock Dividends
Change in retained earnings
Retained Earnings, December 31, 20Y6

4. Prepare the Stockholders' Equity section of the December 31, 20Y6, balance sheet.

Morrow Enterprises Inc. Balance Sheet December 31, 20Y6
Stockholders' Equity
Paid-In-Capital:
Common Stock, $10 stated value (550,000 shares authorized, 451,500 shares issued)
Excess of issue price over stated value
From Sale of Treasury Stock
Total Paid-In Capital
Retained Earnings
Total
Treasury Stock (23,000 shares, at cost)
Total Stockholders' Equity

Answer 1

2. In the books of Morrow Enterprises Inc:

Date	Account Titles	Debit	Credit
		$	$
Jan 22	Cash Dividends Payable	38,880
	Cash		38,880
Apr 10	Cash	1,120,000
	Common Stock		700,000
	Paid-in Capital in Excess of Stated Value		420,000
June 6	Cash	612,000
	Treasury Stock		504,000
	Paid-in Capital from Sale of Treasury Stock		108,000
July 5	Stock Dividends ( 360,000 + 70,000) x 5 % x $ 18	387,000
	Stock Dividends Distributable		215,000
	Paid-in Capital in Excess of Stated Value : Common Stock		172,000
Aug 15	Stock Dividends Distributable	215,000
	Common Stock		215,000
Nov 23	Treasury Stock	437,000
	Cash		437,000
Dec 28	Cash Dividends ( 430,000 x 1.05 - 23,000 ) x $ 0.15	64,275
	Stock Dividends Payable		64,275
Dec 31	Income Summary	8,497,000
	Retained Earnings		8,497,000
Dec 31	Retained Earnings	451,275
	Stock Dividends		387,000
	Cash Dividends		64,275

3.

Morrow Enterprises Inc. Statement of Retained Earnings For the year ended December 31, 20Y6
Retained Earnings, January 1		$ 8,170,000
Net Income	8,497,000
Cash Dividends	(64,275)
Stock Dividends	(387,000)
Change in Retained Earnings		8,045,725
Retained Earnings, December 31		$ 16,215,725

4.

Morrow Enterprises Inc. Balance Sheet ( Partial ) December 31, 20Y6 Stockholders' Equity
Paid-in Capital	$
Common Stock, $ 10 stated value ( 550,000 shares authorized, 451,500 shares issued	4,515,000
Excess of Issue Price over Stated Value	1,292,000
From Sale of Treasury Stock	108,000
Total Paid-in Capital	5,915,000
Retained Earnings	16,215,725
Total	22,130,725
Treasury Stock ( 23,000 shares, at cost)	(437,000)
Total Stockholders' Equity	$ 21,693,725