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Prepare statement of retained earnings: Common stock—$10 par value, 100,000 shares authorized, 55,000 shares issued and...

Prepare statement of retained earnings:

Common stock—$10 par value, 100,000 shares authorized, 55,000 shares issued and outstanding $ 550,000 Paid-in capital in excess of par value, common stock 80,000 Retained earnings 460,000 Total stockholders’ equity $ 1,090,000 In year 2016, the following transactions affected its stockholders’ equity accounts. Jan. 1 Purchased 5,000 shares of its own stock at $20 cash per share. Jan. 5 Directors declared a $4 per share cash dividend payable on Feb. 28 to the Feb. 5 stockholders of record. Feb. 28 Paid the dividend declared on January 5. July 6 Sold 1,875 of its treasury shares at $24 cash per share. Aug. 22 Sold 3,125 of its treasury shares at $17 cash per share. Sept. 5 Directors declared a $4 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 $408,000 credit balance (from net income) in the Income Summary account to Retained Earnings.

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Expert Solution

Statement of Retained Earnings

For the year ended December 31

Particulars Amount ($)
Retained earnings,Beginning balance 460,000
Add:Net Income 408,000
Less:Cash dividend declared ( 420,000)
Treasury stock reissuances (1,875)
Retained earnings ,Ending balance 446,125

Working notes:

(1)Cash dividend declared

Jan 5 Common stock = Total shares -shares purchased

= 55,000 - 5,000 = 50,000

dividends = 50,000 * $4 = $200,000

sep 5 commomn stock = total shares + shares sold

= 50,000 + 1,875 + 3,125 = 55,000

dividends = 55,000 * $4 = $220,000

Total dividends = 200,000 + 220,000 = 420,000

(2) Treasury stock reisssuance (journal entries)

6- july Cash (1,875 * 24) $45,000 dr.

treasury stock,common(1,875*20) $37,500 cr.

paid in capital,treasury stock $7,500 cr.

22 -Aug Cash (3,125*$17) $53,125 dr.

  paid in capital,treasury stock $7,500 dr.

retained earnings $1,875 dr.

Treasury stock,common stock(3,125*$20) $62,500 cr.

  

ekkarill92 answered 2 years ago
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