Question

Kohler Corporation reports the following components of stockholders’ equity on December 31, 2016:

Common stock—$15 par value, 100,000 shares authorized, 50,000 shares issued and outstanding	$	750,000
Paid-in capital in excess of par value, common stock		70,000
Retained earnings		370,000
Total stockholders' equity	$	1,190,000

In year 2017, the following transactions affected its stockholders’ equity accounts.

Jan.		1		Purchased 5,500 shares of its own stock at $20 cash per share.
Jan.		5		Directors declared a $6 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 2,063 of its treasury shares at $24 cash per share.
Aug.		22		Sold 3,437 of its treasury shares at $17 cash per share.
Sept.		5		Directors declared a $6 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 $368,000 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

1.

Date	Account Titles	Debit	Credit
Jan-01	Treasury Stock	$   1,10,000		=5500*20
	Cash		$    1,10,000
Jan-05	Retained Earnings / Cash Dividend	$   2,67,000		=(50000-5500)*6
	Dividend Payable		$    2,67,000
Feb-28	Dividend Payable	$   2,67,000
	Cash		$    2,67,000
Jul-06	Cash	$      49,512		=2063*24
	Treasury Stock		$        41,260	=2063*20
	Paid in Capital from Treasury Stock		$          8,252	=49512-41260
Aug-22	Cash	$      58,429		=3437*17
	Paid in Capital from Treasury Stock	$        8,252		=49512-41260
	Retained Earnings	$        2,059		=68740-58429-8252
	Treasury Stock		$        68,740	=3437*20
Sep-05	Retained Earnings / Cash Dividend	$   3,00,000		=50000*6
	Dividend Payable		$    3,00,000
Oct-28	Dividend Payable	$   3,00,000
	Cash		$    3,00,000
Dec-31	Income Summary	$   3,68,000
	Retained Earnings		$    3,68,000

2.

Statement of Retained Earnings
Beginning Balance	$   3,70,000
Add Net Income	$   3,68,000
Less Dividend	$ -5,67,000
Less Treasury Stock	$       -2,059
Ending Balance	$ 1,68,941

3.

Stockholders Equity
Common Stock	$   7,50,000
Paid-in capital in excess of par value, common stock	$      70,000
Retained Earnings	$   1,68,941
Total Stockholders Equity	$ 9,88,941