Question

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

Common stock—$15 par value, 100,000 shares authorized, 60,000 shares issued and outstanding	$	900,000
Paid-in capital in excess of par value, common stock		70,000
Retained earnings		430,000
Total stockholders' equity	$	1,400,000

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

Jan.		1		Purchased 4,000 shares of its own stock at $20 cash per share.
Jan.		5		Directors declared a $4 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 1,500 of its treasury shares at $24 cash per share.
Aug.		22		Sold 2,500 of its treasury shares at $17 cash per share.
Sept.		5		Directors declared a $4 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 $408,000 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

Solution 1:
Kohler Corporation - Journal Entries
Date	Particulars	Debit	Credit
2-Jan	Treasury Stock, common Dr	$80,000.00
	To Cash		$80,000.00
	(Being 4000 shares of treasury stock purchased at $20 per share)
5-Jan	Retained Earnings Dr	$224,000.00
	To Common Dividend payable [(60000 - 4000)*4]		$224,000.00
	(Being dividend declared)
28-Feb	Common Dividend Payable Dr	$224,000.00
	To Cash		$224,000.00
	(Being dividend paid)
6-Jul	Cash A/c Dr (1500*$24)	$36,000.00
	To Treasury Stock, common (1500*20)		$30,000.00
	To Additional Paid in Capital (1500*$4)		$6,000.00
	(Being 1500 shares of treasury stock sold at $24 per share)
22-Aug	Cash A/c Dr (2500*17)	$42,500.00
	Additional Paid in Capital A/c Dr	$6,000.00
	Retained Earnings Dr (Balancing figure)	$1,500.00
	To Treasury Stock, common (2500*$20)		$50,000.00
	(Being 2500 shares of treasury stock sold at $20 per share)
5-Sep	Retained Earnings Dr	$240,000.00
	To Common Dividend payable (60000*4)		$240,000.00
	(Being dividend declared)
28-Oct	Common Dividend Payable Dr	$240,000.00
	To Cash		$240,000.00
	(Being dividend paid)
31-Dec	Income summary Dr	$408,000.00
	To Retained Earnings		$408,000.00
	(Being income transferred to retained earnings)

Solution 2:
Kohler Corporation - Statement of Retained Earnings on 31.12.2017
Particulars	Amount
Opening balance	$430,000.00
Add: Income for 2018	$408,000.00
	$838,000.00
Less: Dividend Paid	-$464,000.00
Less: Loss on sale of treasury stock	-$1,500.00
Ending balance of Retained Earnings	$372,500.00

Solution 3:
Stockholder Equity Section of Balance sheet
Kohler Corporation at December 31, 2017
Particulars	Amount
Stockholders Equity:
Common stock—$15 par value, 100,000 shares authorized, 60,000 shares issued and outstanding	$900,000.00
Paid-in capital in excess of par value, common stock	$70,000.00
Total contributed Capital	$970,000.00
Retained Earnings	$372,500.00
Total Stockholder's Equity	$1,342,500.00