Question

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

Paid-in capital:
Preferred stock, 8.5%, 94,000 shares at $1 par	$	94,000
Common stock, 444,400 shares at $1 par		444,400
Paid-in capital—excess of par, preferred		1,555,000
Paid-in capital—excess of par, common		2,605,000
Retained earnings		9,345,000
Treasury stock, at cost; 4,400 common shares		(44,000	)
Total shareholders' equity	$	13,999,400

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 270,000 shares of Leasco International common stock that Consolidated Paper had purchased in January as an investment (book value: $516,000). The investment shares had a fair value of $2 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 2% 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 8.5% cash dividend on the 94,000 preferred shares, payable on December 28 to shareholders of record December 20.

On December 1 the board of directors declared a cash dividend of $0.60 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 $840,000.

Answer 1

Requirement 1

PART A

March 3—declaration date

Description	debit	credit
Investment in Leasco International stock	24000
Gain on appreciation of investment (270000*2)-516000		24000
Retained earnings (270,000 shares at $2 per share)	540,000
Property dividends payable		540,000

March 15—date of record

No entry

March 31—payment date

Description	debit	credit
Property dividends payable	540,000
Investment in Leasco International stock		540,000

PART B

May 3

Description	debit	credit
Paid-in capital—excess of par, common	110000
Common stock (25% x [444400 –4,400] shares at $1 par)		110000

PART C

July 5

Description	debit	credit
Retained earnings (440000+110000)*2% *10	110000
Common stock (11000 x $1 par)		11000
Paid-in capital—excess of par, common (difference)		99000

PART D

December 1—declaration date

Description	debit	credit
Retained earnings	7990
Cash dividends payable ($94,000 par x 8.5%)		7990

December 20—date of record

No entry

December 28—payment date

Description	debit	credit
Cash dividends payable	7990
Cash		7990

PART E

December 1—declaration date

Description	debit	credit
Retained earnings (440000+110000+11000)*0.60	336600
Cash dividends payable ($90,000 par x 8.8%)		336600

December 20—date of record

No entry

December 28—payment date

Description	debit	credit
Cash dividends payable	336600
Cash		336600

Requirement 2

CONSOLIDATED PAPER, INC.

[Shareholders’ Equity section]

December 31, 2018

Paid-in capital:
Preferred stock, 8.5%, 94,000 shares at $1 par	94000
Common stock 565400 shares at $1 par	565400
Paid-in capital—excess of par, preferred	1555000
Paid-in capital—excess of par, common	2594000
Retained earnings	9190410
Treasury stock, at cost; 4,400 common shares	(44,000)
Total shareholders’ equity	13954810

444400+110000+11000 =565400

2,605,000 +99000-110000 = 2594000

9,345,000-336600-7990-540000-110000+840,000