Question

Balthus Corp. reports the following components of stockholders’ equity on December 31, 2016:

Common stock—$1 par value, 320,000 shares authorized,

200,000 shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 200,000

Paid-in capital in excess of par value, common stock . . . . . . . . . . . . . . . . . . . . . 1,400,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,160,000

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . …. . . . . . . . . . . . . . . . $3,760,000

It completed the following transactions related to stockholders’ equity in year 2017:

Jan. 10 Purchased 40,000 shares of its own stock at $12 cash per share.

Mar. 2 Directors declared a $1.50 per share cash dividend payable on March 31 to the March 15 stockholders of record.

Mar. 31 Paid the dividend declared on March 2.

Nov. 11 Sold 24,000 of its treasury shares at $13 cash per share.

Nov. 25 Sold 16,000 of its treasury shares at $9.50 cash per share.

Dec. 1 Directors declared a $2.50 per share cash dividend payable on January 2 to the December 10 stockholders of record.

Dec. 31 Closed the $1,072,000 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.

Answer 1

Solution 1:

Journal Entries - Balthus Corporation
Date	Particulars	Debit	Credit
10-Jan	Treasury stock Dr	$480,000.00
	To Cash		$480,000.00
	(To record purchase of treasury shares)
2-Mar	Dividends Dr (160000*1.50)	$240,000.00
	To dividends payable		$240,000.00
	(To record dividend declared)
31-Mar	Dividend Payable Dr	$240,000.00
	To Cash		$240,000.00
	(To record dividend payment)
11-Nov	Cash Dr (24000*$13)	$312,000.00
	To Treasury stock (24000*$12)		$288,000.00
	To Paid in capital from treasury stock		$24,000.00
	(To record sale of treasury stock)
25-Nov	Cash Dr (16000*$9.50)	$152,000.00
	Paid in capital from treasury stock Dr	$24,000.00
	Retained Earnings Dr	$16,000.00
	To Treasury stock (16000*$12)		$192,000.00
	(To record sale of treasury stock)
1-Dec	Dividends Dr (200000*2.50)	$500,000.00
	To dividends payable		$500,000.00
	(To record dividend declared)
31-Dec	Income summary Dr	$1,072,000.00
	To Retained Earnings		$1,072,000.00
	(To close net income to retained earnings)

Solution 2:

Retained Earnings Statement - Balthus Corporation
For the year ended Dec 31, 2017
Particulars	Amount
Beginningn retained earnings	$2,160,000.00
Add: Net Income	$1,072,000.00
Less: Dividend ($240,000 + $500,000)	$740,000.00
Less: loss from sale of treasury stock	$16,000.00
Ending retained earnings	$2,476,000.00

Solution 3:

Balthus Corporation
Balance Sheet - Stockholder's Equity Section
31-Dec-17
Particulars	Amount
Stockholders Equity:
Common Stock, $1 par, 320,000 shares authorized, 200000 shares Issued and outstanding	$200,000.00
Paid in capital in excess of par value - common stock	$1,400,000.00
Contributed Capital	$1,600,000.00
Retained Earnings	$2,476,000.00
Total Stockholder's Equity	$4,076,000.00