Question

he balance sheet of Consolidated Paper, Inc., included the following shareholders’ equity accounts at December 31, 2020:

Paid-in capital:
Preferred stock, 8.5%, 96,000 shares at $1 par	$	96,000
Common stock, 464,600 shares at $1 par		464,600
Paid-in capital—excess of par, preferred		1,575,000
Paid-in capital—excess of par, common		2,625,000
Retained earnings		9,545,000
Treasury stock, at cost; 4,600 common shares		(55,200	)
Total shareholders' equity	$	14,250,400

During 2021, several events and transactions affected the retained earnings of Consolidated Paper.

Required:
1. Prepare the appropriate entries for these events.

1. On March 3, the board of directors declared a property dividend of 280,000 shares of Leasco International common stock that Consolidated Paper had purchased in January as an investment (book value: $814,000). The investment shares had a fair value of $3 per share and were distributed March 31 to shareholders of record March 15.
2. 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 $12 per share.
3. On July 5, a 3% common stock dividend was declared and distributed. The market value of the common stock was $12 per share.
4. On December 1, the board of directors declared the 8.5% cash dividend on the 96,000 preferred shares, payable on December 28 to shareholders of record December 20.
5. On December 1, the board of directors declared a cash dividend of $0.40 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, 2021. Net income for the year was $860,000.

Answer 1

Solution:

1)

Journal entry:

Date	Account title and explanation	Debit	Credit
March 3	Investment in Leasco inetrenational	$26,000
	Gain on revaluation of Leasco		$26,000
	(280,000*3)-814,000
March 3	Retained earning	$840,000
	Property dividend payable		$840,000
	(280,000*3)
March 15	No entry
March 31	Property dividend payable	$840,000
	Investment in Leasco international		$840,000
May 3	Paid in capital Excess of par common	$17,250
	Common stock		$17,250
	(17,250*$1)
July 5	Rtained earnings(17,250 *12)	$207,000
	Common stock(17,250 *1)		$17,250
	Paid in capital excess of par common		$189,750
Dec 1	Retained earnings	$8,160
	Cash dividendes payable		$8,160
	(8.5%*96,000)
Dec 20	No entry
Dec 28	Cash dividends payable	$8,160
	cash		$8,160
Dec 1	Retained earnings	$236,900
	Cash dividends payable		$236,900
	(582,250*0.40)
Dec 20	No entry
Dec 28	Cash dividends payable	$236,900
	Cash		$236,900

Working:

	Stock o/s at begiining(464,600 - 4,600)	460,000
May 3	Stock dividend(460,000 *25%)	115,000
	Balance	575,000
	Stock dividends (575,000 *3%)	17,250
	Balance	592,250

2)

Consolidate paper inc Shareholder's equity section December 31
Paid in capital
Preferred stock	$96,000
Common stock(592,250+4,600)	$596,850
Paid in capital excess of par preferred	$ 1,575,000
Paid in capital excess of par common	$2,699,750
Retained earnings	$9,204,940
Treausry stock	$55,200
Total shareholder's equity	$14,227,740

Working:

Paid in capital excess of par common = $2,625,000 - $115,000 +$189,750 =$2,699,750

Retained earnings =$9,545,000+860,000 -840,000 -115,000 -8,160 -236,900 =$9,204,940

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