Question

Kohler Corporation reports the following components of stockholders equity on December 31, 2013:

Common Stock- $10 par value, 100,000 shares authorized,

           40,000 shares issued and outstanding…………………………….           $400,000

Paid-in capital in excess of par value, common stock …………………..     60,000

Retained Earnings …………………………………………………………..   270,000

Total Stockholders’ Equity ………………………………………………… $730,000

In 2014, 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 $2 per share cash dividend payable on Feb. 28 to the stockholder 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 $2 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 $388,000 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 2014.
2. Prepare a statement of retained earnings for the year ended December 31, 2014
3. Prepare the stockholders’ equity section of the company’s balance sheet as of December 31, 2014.

Answer 1

Requirement 1:

Date	Account title and explanation	Debit	Credit
Jan. 1	Treasury stock [4000 x $20 cost]	$80,000
	Cash		$80,000
	[To record repurchase of own shares]
Jan. 5	Retained earnings	$72,000
	Dividends payable [(40,000-4,000 treasury stock) x $2]		$72,000
	[To record declaration of cash dividends]
Feb.28	Dividends payable	$72,000
	Cash		$72,000
	[To record payment of cash dividends]
July 6	Cash [1500 x $24]	$36,000
	Treasury stock [1500 x $20]		$30,000
	Paid-in capital from treasury stock		$6,000
	[To record sale of treasury stock]
Aug 22	Cash [2500 x $17]	$42,500
	Paid-in capital from treasury stock	$6,000
	Retained earnings	$1,500
	Treasury stock [2,500 x $20]		$50,000
	[To record sale of treasury stock]
Sept.5	Retained earnings	$80,000
	Dividends payable [(40,000-4,000 +1500+2500) x $2		$80,000
	[To record declaration of cash dividends]
Oct.28	Dividends payable	$80,000
	Cash		$80,000
	[To record payment of cash dividends]
Dec.31	Income Summary	$388,000
	Retained earnings		$388,000
	[To record net income]

Requirement 2:

Kohler Corporation
Statement of Retained earnings
For the year ended Dec 31,2017
Retained earnings, Jan 1 2017	$270,000
Add: Net income	$388,000
Balance	$658,000
(Less): Cash dividends [72,000+80,000]	($152,000)
Treasury stock	($1,500)
Retained earnings, Dec 31 2017	$504,500

Requirement 3:

Kohler Corporation
Balance Sheet (partial)
At December 31,2017
Stockholders' Equity:
Paid-in capital:
Common stock	$400,000
Paid-in capital in excess of par value, common	$60,000
Total paid-in capital	$460,000
Retained earnings	$504,500
Total Stockholders' equity	$964,500