Question

Kohler Corporation reports the following components of stockholders’ equity on December 31, 2016: Common stock—$15 par value, 100,000 shares authorized, 45,000 shares issued and outstanding $ 675,000 Paid-in capital in excess of par value, common stock 70,000 Retained earnings 430,000 Total stockholders' equity $ 1,175,000 In year 2017, 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 February 28 to the February 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. 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:

Kohler Corporation - Journal Entries
Date	Particulars	Debit	Credit
1-Jan	Treasury Stock A/c Dr	$100,000.00
	To Cash		$100,000.00
	(Being 5000 shares of treasury stock purchased at $20 per share)
5-Jan	Retained Earnings Dr	$160,000.00
	To Dividend payable [(45000 - 5000)*4]		$160,000.00
	(Being dividend declared)
28-Feb	Dividend Payable Dr	$160,000.00
	To Cash		$160,000.00
	(Being dividend paid)
6-Jul	Cash A/c Dr (1875*24)	$45,000.00
	To Treasury Stock (1875*20)		$37,500.00
	To Additional Paid in Capital (1875*$4)		$7,500.00
	(Being 2063 shares of treasury stock sold at $24 per share)
22-Aug	Cash A/c Dr (3125*17)	$53,125.00
	Additional Paid in Capital A/c Dr	$7,500.00
	Retained Earnings Dr (Balancing figure)	$1,875.00
	To Treasury Stock (3125*$20)		$62,500.00
	(Being 3125 shares of treasury stock sold at $17 per share)
5-Sep	Retained Earnings Dr	$180,000.00
	To Dividend payable (45000*4)		$180,000.00
	(Being dividend declared)
28-Oct	Dividend Payable Dr	$180,000.00
	To Cash		$180,000.00
	(Being dividend paid)
31-Dec	Income summary Dr	$408,000.00
	To Retained Earnings		$408,000.00
	(Being income transferred to retained earnings)

Solution 2:

Kohler Corporation - Statement of Retained Earnings on 31.12.2017
Particulars	Amount
Opening balance	$430,000.00
Add: Income for 2017	$408,000.00
Less: Dividend Paid (40000*$4 + 45000*$4)	$340,000.00
Less: Loss on sale of treasury stock	$1,875.00
Ending balance of Retained Earnings	$496,125.00

Solution 3:

Stockholder Equity Section of Balance sheet
Kohler Corporation at December 31, 2017
Particulars	Amount
Stockholders Equity:
Common stock—$15 par value, 100,000 shares authorized, 45,000 shares issued and outstanding	$675,000.00
Paid-in capital in excess of par value, common stock	$70,000.00
Retained Earnings	$496,125.00
Total Stockholder's Equity	$1,241,125.00