Question

The balance sheet of Consolidated Paper, Inc., included the following shareholders’ equity accounts at December 31, 2017: Paid-in capital: Preferred stock, 7.0%, 91,000 shares at $1 par $ 91,000 Common stock, 414,100 shares at $1 par 414,100 Paid-in capital—excess of par, preferred 1,525,000 Paid-in capital—excess of par, common 2,575,000 Retained earnings 9,045,000 Treasury stock, at cost; 4,100 common shares (41,000 ) Total shareholders' equity $ 13,609,100 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 255,000 shares of Leasco International common stock that Consolidated Paper had purchased in January as an investment (book value: $744,000). The investment shares had a fair value of $3 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 $10 per share. On July 5 a 1% common stock dividend was declared and distributed. The market value of the common stock was $10 per share. On December 1 the board of directors declared the 7.0% cash dividend on the 91,000 preferred shares, payable on December 28 to shareholders of record December 20. On December 1 the board of directors declared a cash dividend of $0.40 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 $800,000.

Answer 1

Solution:

1. The appropriate Journal entries for given events:

Date	Particulars	Debit($)	Credit($)	Calculations
3 March	Investment in L A/c Dr	$21,000		(255,000*$3) - $744,000
	To Investment revaluation gainA/c		$21,000
3 March	Retained earnings A/c Dr	$765,000		($744,000+$21,000)
	To Dividend payable on property A/c		$765,000
31 March	Dividend payable on property A/c Dr	$765,000
	To Investment in L A/c		$765,000
3 May	Retained earnings A/c Dr	$102,500		(414,100,-,4,100)*25%*$1
	To Common stock A/c		$102,500
5 July	Retained earnings A/c Dr	$51,250		(414,100,-,4,100+102,500)*1%*$10
	To Common stock A/c		$5,125	(414,100,-,4,100+102,500)*1%*$1)
	To paid in capital in excess of par -Common Stock A/c		$46,125
1 Dec	Retained earnings A/c Dr	$6,370		($91,000*7%)
	To Dividends payable on preferred stock A/c		$6,370
28 Dec	Dividends payable on preferred stock A/c Dr	$6,370
	To Cash A/c		$6,370
1 Dec	Retained earnings A/c Dr	$207,050		(414,100,-,4,100+102,500+5,125)*$0.40
	To Dividends payable on commonstock A/c		$207,050
28 Dec	Dividends payable on commonstock A/c Dr	$207,050
	To Cash A/c		$207,050

.

2. Prepare the shareholders' equity section of the balance sheet for Consolidated Paper, Inc., at December 31, 2018. Net income for the year was $800,000.

Statement of Stockholder's equity
Details	Amount ($)	Amount($)
Paid in capital :
Preferred stock	$91,000
Common stock	$521,725
Paid in capital Excess of par ,Preferred	$1,525,000
Paid in capital Excess of par ,Common	$2,621,125
Total paid in capital		$4,758,850
Retained earnings		$8,712,830
Total paid in capital and Retained earnings		$13,471,680
Less: Treasury Stock		($41,000)
Total Stockholder's Equity		$13,430,680

Working notes:

Common stock :

= $414,100+$102,500+5,125

= $521,725

Paid in capital Excess of par ,Common on dec 31,2018 :

= $2,575,000+$46,125

= $2,621,125

Retained earnings :

= $9,045,000 - ($765,000+$102,500+$51,250+$213,420) + $800,000

= $8,712,830

Note: If you have any doubt please comment. Please don't give thumb down.

Thank you.