Question

Morrow Enterprises Inc. manufactures bathroom fixtures. The stockholders’ equity accounts of Morrow Enterprises Inc., with balances on January 1, 20Y5, are as follows:

Common stock, $20 stated value (500,000 shares authorized, 369,000 shares issued)	$7,380,000
Paid-In Capital in Excess of Stated Value—Common Stock	848,700
Retained Earnings	33,497,000
Treasury Stock (23,300 shares, at a cost of $18 per share)	419,400

The following selected transactions occurred during the year:

Jan.	22	Paid cash dividends of $0.08 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $27,656.
Apr.	10	Issued 72,000 shares of common stock for $24 per share.
Jun.	6	Sold all of the treasury stock for $26 per share.
Jul.	5	Declared a 2% stock dividend on common stock, to be capitalized at the market price of the stock, which is $26 per share.
Aug.	15	Issued the certificates for the dividend declared on July 5.
Nov.	23	Purchased 30,000 shares of treasury stock for $20 per share.
Dec.	28	Declared a $0.12-per-share dividend on common stock.
	31	Closed the two dividends accounts to Retained Earnings.

	Required:
A.	Enter the January 1 balances in T accounts for the stockholders’ equity accounts listed.
B.	Journalize the entries to record the transactions, and post to the eight selected accounts. No post ref is required in the journal. Refer to the Chart of Accounts for exact wording of account titles.
C.	Prepare a retained earnings statement for the year ended December 31, 20Y5. Assume that Morrow Enterprises had net income for the year ended December 31, 20Y5, of $1,090,000. For those boxes in which you must enter subtractive or negative numbers use a minus sign. The word “Less” is not required.*
D.	Prepare the Stockholders’ Equity section of the December 31, 20Y5, balance sheet. For those boxes in which you must enter subtractive or negative numbers use a minus sign.* * Refer to the list of Amount Descriptions provided for the exact wording of the answer choices for text entries.

Answer 1

Requirement 1
	Date/S.N.	Account title & Explanation		Debit	Credit
	Jan-22	Dividend payable		27656
			Cash		27656
		To record the payment of dividends
	Apr-10	Cash		1728000		=72000*24
			Common stock at stated value		1440000	=72000*20
			paid in capital in excess of stated-common stock		288000	=72000*4
		To record the issuance of common stock
	Jun-06	Cash		605800		=23300*26
			Treasury stock		419400	=23300*18
			Paid in capital -Treasury stock		186400	=23300*8
		To record the issuance of treasury stock
	Jul-05	Stock Dividend		229320		=26*(369000+72000)*2%
			Stock dividend distributable		229320
		To record the issuance of stock dividends
	Aug-15	Stock dividend distributable		229320
			Common stock at stated value		176400	=20*(369000+72000)*2%
			paid in capital in excess of stated-common stock		52920	=6*(369000+72000)*2%
		To record the distribution of stock dividends
	Nov-23	Treasury Stock		600000		=30000*20
			Cash		600000	=30000*20
		To record the reacquisition of shares
	Dec-28	Cash dividends		50378.4		=0.12*(369000+72000+(2%*(369000+72000))-30000)
			Cash dividends payable		50378.4	=0.12*(369000+72000+(2%*(369000+72000))-30000)
		To record the declaration of cash dividends
	Dec-31	Retained earnings		279698.4
			Cash dividends		50378.4
			Stock dividends		229320
		To record the closing of stock and cash dividends
Requirement 3
				Common stock at stated value
						7380000	Beginning Balance
						1440000
						176400
				Ending Balance	8996400
				Paid in capital -Treasury stock
						186400	Cash
				Ending Balance	186400
				Treasury Stock
				Beginning Balance	419400	419400	Cash
				Cash	600000	600000	Ending Balance
				Paid in capital in excess of stated value common stock
						848700	Beginning Balance
						288000
						52920
				Ending Balance	1189620
Requirement 3
				Statement of Retained earnings
				Beginning Balance				33497000
				Add: Net Income				1090000
				Less : stock dividends				229320
				Less : Cash dividends				50378.4
				Ending Balance				34307301.6
Requirement 4
				Balance sheet (partial)
			7380000	Common stock at stated value (issued 419820 shares)				8996400
				(Authorised to issue 500000 shares)
				paid in capital in excess of stated value-common stock				1189620
				paid in capital -Treasury stock				186400
				Retained earnings				34307301.6
				Less : Treasury stock				-600000
				Stockholder's equity				44079721.6