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6. The stockholders' equity account balances of Kay Corporation for 2020 are given below: January 1...

6.

The stockholders' equity account balances of Kay Corporation
for 2020 are given below:

                                     January 1      December 31
Common stock ......................   648,000         720,000
Paid-in capital – common stock ....   540,000         594,000
Treasury stock ....................   160,000          36,800
Paid-in capital – treasury stock ..     5,000            ?
Retained earnings .................   425,000            ?

The common stock account at January 1 consisted of 54,000 shares
that were outstanding at a $12 par value per share.

The treasury stock account at January 1 consisted of 10,000 shares
that had been re-acquired at a $16 cost per share.

During 2020, Kay Corporation entered into the following transactions:

March 23     Re-issued 2,400 of the treasury shares for $22 per share

June 9       Re-issued 3,700 of the treasury shares for $13 per share

August 15    Issued 6,000 shares of previously un-issued common stock

November 2   Re-issued 1,600 of the treasury shares for $14 per share

December 18  Declared and paid a $3.75 dividend per share on the
             outstanding shares of common stock

Kay Corporation reported a net income of $293,760 for 2020.

Calculate the retained earnings account balance at December 31, 2020.

Solutions

Expert Solution

Computation of Profit or loss on reissue of treasury stock (adjusted in retained earnings)
Paid in capital-Treasury stock beginning balance 5,000
Reissue on Mar23:
Sale price (2400*22) 52800
Less: Cost (2400*16) 38400
Profit transferred to Paid in capital 14,400
Reissue on June 9;
Sales price (3700*13) 48100
Cost (3700*16) 59200
Loss transferred to paid in capital -11100
Reissue on Nov 02:
Sale price (1600*14) 22,400
Cost (1600*16) 25,600
Loss transferred to paid in capital -3,200
Net ending balance of Paid in capital -Treasury stock 5,100
(this means no amount transferred to retained earnings)
Computation of outstanding shares on Dec31:
Outstanding shares in the beginning (54,000-10,000) 44,000
Add: Reissue during the year (2400+3700+1600) 7,700
Add: Unissued shares issued 6,000
Outstanding shares at the end 57,700
Computation of Ending balance of Retained earnings:
Beginning balance of Retained eaarnings 4,25,000
Add: Net Income 2,93,760
Less: Dividend (57,700 shares @ 3.75) -2,16,375
Ending balance of Retained earnings 5,02,385
Answer is $502,385

ekkarill92 answered 3 years ago
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