Question

Shown below in T-account format are the changes affecting the retained earnings of Brenner-Jude Corporation during 2021. At January 1, 2021, the corporation had outstanding 105 million common shares, $1 par per share.
  

Retained Earnings ($ in millions)
		100	Beginning balance
Retirement of 5 million common shares for $29 million	3
		84	Net income for the year
Declaration and payment of a $0.32 per share cash dividend	32
Declaration and distribution of a 6% stock dividend	28
		121	Ending balance

Required:
1. From the information provided by the account changes, you should be able to recreate the transactions that affected Brenner-Jude’s retained earnings during 2021. Prepare the journal entries that Brenner-Jude must have recorded during the year for these transactions. (Hint: In lieu of revenues and expenses, use an account titled “Income summary” to close net income or net loss.)
2. Prepare a statement of retained earnings for Brenner-Jude for the year ended 2021.

Answer 1

Answer
Journal entry related to retained earnings changes are given below
Date	General Journal	Debit	Credit
	Common stock (5 million shares*$1 par value)	$        5,000,000
	Paid in capital - excess of par (29000000-5000000-3000000)	$      21,000,000
	Retained earnings	$        3,000,000
	Cash		$      29,000,000
	(To record common shares retired)
Date	General Journal	Debit	Credit
	Income summary	$      84,000,000
	Retained earnings		$      84,000,000
	(To close income summary account)
Date	General Journal	Debit	Credit
	Retained earnings	$      32,000,000
	Cash		$      32,000,000
	(To record cash dividend declared and paid)
Date	General Journal	Debit	Credit
	Retained earnings	$      28,000,000
	Common stock ((105-5)*6%*$1 par value)		$        6,000,000
	Paid in capital - excess of par (28 million - 6 million)		$      22,000,000
	(To record stock dividend declared and paid)
2
Retained earnings statement is provided below:
	Statement of retained earnings
		$ in million
	Beginning balance, January 1	$                  100
	Net income for the year	$                    84
	Less:
	Retirement of common stock	-$                      3
	Cash dividend paid	-$                    32
	Stock dividend paid	-$                    28
	Retained earnings, December 31	$                  121