Question

The balance sheet of Consolidated Paper, Inc., included the following shareholders’ equity accounts at December 31, 2017:

Paid-in capital:
Preferred stock, 7.5%, 82,000 shares at $1 par	$	82,000
Common stock, 323,200 shares at $1 par		323,200
Paid-in capital—excess of par, preferred		1,445,000
Paid-in capital—excess of par, common		2,495,000
Retained earnings		8,245,000
Treasury stock, at cost; 3,200 common shares		(38,400	)
Total shareholders' equity	$	12,551,800

During 2018, several events and transactions affected the retained earnings of Consolidated Paper.

Required:
1. Prepare the appropriate entries for these events.

On March 3 the board of directors declared a property dividend of 210,000 shares of Leasco International common stock that Consolidated Paper had purchased in January as an investment (book value: $828,000). The investment shares had a fair value of $4 per share and were distributed March 31 to shareholders of record March 15.

On May 3 a 5-for-4 stock split was declared and distributed. The stock split was effected in the form of a 25% stock dividend. The market value of the $1 par common stock was $12 per share.

On July 5 a 3% common stock dividend was declared and distributed. The market value of the common stock was $12 per share.

On December 1 the board of directors declared the 7.5% cash dividend on the 82,000 preferred shares, payable on December 28 to shareholders of record December 20.

On December 1 the board of directors declared a cash dividend of $0.50 per share on its common shares, payable on December 28 to shareholders of record December 20.

2. Prepare the shareholders' equity section of the balance sheet for Consolidated Paper, Inc., at December 31, 2018. Net income for the year was $720,000.

DO NOT USE HANDWRITING AND PAPER TO ANSWER

Answer 1

1)

Mar-03	Investment in Leasco International stock	$    12,000.00
	Gain on investment		$    12,000.00
	Gain on appreciation of investment (210,000*4 – 828000) = $12,000
Mar-03	Retained Earnings	$ 840,000.00
	Property dividends payable		$ 840,000.00
	Retained earnings (210,000 shares at $4 per share) = $840,000
Mar-15	No Journal Entry Required
Mar-31	Property dividends payable	$ 840,000.00
	Investment in Leasco International stock		$ 840,000.00
May-03	Paid-in capital—Excess of par, common	$    80,000.00
	Common stock		$    80,000.00
	Common stock (25% × [323,200 – 3,200] shares at $1 par) = $80,000
Jul-05	Retained earnings	$ 144,000.00
	Common stock		$    12,000.00
	Paid-in capital—Excess of par, common		$ 132,000.00
	3% × [320,000 + 80,000 shares] = 12,000 additional shares
	Retained earnings (12,000* × $12 per share) = $144,000
	Common stock (12,000* × $1 par) = $12,000
Dec-01	Retained earnings	6150
	Cash dividends payable		6150
	Cash dividends payable ($82,000 par × 7.5%) = $7,656
Dec-20	No Journal Entry Required
Dec-28	Cash dividends payable	$       6,150.00
	Cash.		$       6,150.00
Dec-01	Retained earnings	$ 206,000.00
	Cash dividends payable		$ 206,000.00
	Cash dividends payable (320,000+80,000+12000 × 0.50) = $206,000
Dec-20	No Journal Entry Required
Dec-28	Cash dividends payable	$ 206,000.00
	Cash.		$ 206,000.00

2)

CONSOLIDATED PAPER, INC.[Shareholders’ Equity section]December 31, 2018
Paid-in capital:
Preferred stock	$                 82,000.00
Common stock	$               415,200.00
Common stock Paid-in capital—excess of par, preferred	$           1,445,000.00
Paid-in capital—excess of par, common	$           2,547,000.00
Retained earnings:
Retained earnings	$           7,768,850.00
Treasury stock	$               (38,400.00)
Total shareholders’ equity	$         12,219,650.00