Question

Analyzing and Identifying Financial Statement Effects of Dividends
The stockholders’ equity of Kinney Company at December 31, 2015, is shown below:

5% 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 2016.

Apr. 1 Declared and issued a 100% stock dividend on all outstanding shares of common stock. The market value of the stock was $11 per share.

Dec. 7 Declared and issued a 3% stock dividend on all outstanding shares of common stock. The market value of the stock was $14 per share.

Dec. 20 Declared and paid (1) the annual cash dividend on the preferred stock and (2) a cash dividend of 80 cents per common share.

a. Using the financial statement effects template, illustrate the effects of these transactions.

Use negative signs with answers when appropriate. When applicable, enter total amount for contributed capital.

Balance Sheet Transaction Cash Asset + Noncash Assets = Liabilities + Contrib. Capital + Earned Capital - Contra Equity Declared and paid 100% stock dividend. Answer + Answer = Answer + Answer + Answer - Answer Declared and paid 3% stock dividend Answer + Answer = Answer + Answer + Answer - Answer Declared and issued a cash dividend Answer + Answer = Answer + Answer + Answer - Answer

Income Statement Revenue - Expenses = Net Income Answer - Answer = Answer Answer - Answer = Answer Answer - Answer = Answer

b. Prepare the journal entries for these transactions.

General Journal
	Description		Debit	Credit
4/1	AnswerAdditional paid in capitalCashCommon stockRetained earningsNet income		Answer	Answer
	AnswerAdditional paid in capitalCashCommon stockRetained earningsNet income		Answer	Answer
	To record cash dividend
12/7	AnswerAdditional paid in capitalCashCommon stockRetained earningsNet income		Answer	Answer
	Common stock		Answer	Answer
	AnswerAdditional paid in capitalCashCommon stockRetained earningsNet income		Answer	Answer
12/20	AnswerAdditional paid in capitalCashCommon stockRetained earningsNet income		Answer	Answer
	AnswerAdditional paid in capitalCashCommon stockRetained earningsNet income		Answer	Answer

c. Post the journal entries from b to the related T-accounts.

Cash
	Answer	Answer

Retained Earnings
	Answer	Answer
	Answer	Answer
	Answer	Answer

Common Stock
	Answer	Answer
	Answer	Answer

Additional Paid in Capital
	Answer	Answer

d. Prepare a 2016 retained earnings reconciliation assuming that the company reports 2016 net income of $253,000.

Do not use negative signs with any of your answers.

Kinney Company Statement of Retained Earnings For the Year Ended December 31,2016
Retained earnings, December 31, 2015		$Answer
Add: AnswerAdditional paid in capitalCashCommon stockRetained earningsNet income		Answer
		Answer
Less: Cash dividends declared	$Answer
Stock dividends declared	Answer	Answer
Retained earnings, December 31, 2016		$Answer

Answer 1

Solution a:

Balance Sheet

Income Statement

Transaction

Cash Asset

+

Noncash Assets

=

Liabilities

+

Contrib. Capital

+

Earned Capital

-

Contra Equity

Revenue

-

Expenses

=

Net Income

Declared and paid 100% stock dividend.

+

=

+

$250,000.00

+

-$250,000.00

-

-

=

Declared and paid 3% stock dividend

+

=

+

$42,000.00

+

-$42,000.00

-

-

=

Declared and issued a cash dividend

-$102,400.00

+

=

+

+

-$102,400.00

-

-

=

Solution b:

General Journal
Date	Description	Debit	Credit
1-Apr	Retained earnings Dr	$250,000.00
	To Common stock		$250,000.00
	(To record stock dividend)
7-Dec	Retained earnings Dr	$42,000.00
	To Common stock (3000*$5)		$15,000.00
	To Additional paid in capital (3000*$9)		$27,000.00
	(To record issue of stock dividend)
20-Dec	Retained earnings Dr	$102,400.00
	To Cash		$102,400.00
	(To record payment of cash dividend)

Solution c:

Cash
		$102,400.00	20-Dec

Retained Earnings
1-Apr	$250,000.00	$656,000.00	Beg Bal
7-Dec	$42,000.00
20-Dec	$102,400.00

Common Stock
		$250,000.00	Beg Bal
		$250,000.00	1-Apr
		$15,000.00	7-Dec

Additional Paid in Capital
		$27,000.00	7-Dec

Solution d:

Kinney Company
Statement of Retained Earnings
For the Year Ended December 31,2016
Retained earnings, December 31, 2015		$656,000.00
Add: Net income		$253,000.00
		$909,000.00
Less: Cash dividends declared	$102,400.00
Stock dividends declared	$292,000.00	$394,400.00
Retained earnings, December 31, 2016		$514,600.00