Question

Kohler Corporation reports the following components of stockholders’ equity on December 31, 2017.

Common stock—$10 par value, 100,000 shares authorized, 50,000 shares issued and outstanding	$	500,000
Paid-in capital in excess of par value, common stock		80,000
Retained earnings		460,000
Total stockholders' equity	$	1,040,000

In year 2018, the following transactions affected its stockholders’ equity accounts.

Jan.		1		Purchased 6,000 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 2,250 of its treasury shares at $24 cash per share.
Aug.		22		Sold 3,750 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 $388,000 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 2018.
2. Prepare a statement of retained earnings for the year ended December 31, 2018.
3. Prepare the stockholders' equity section of the company’s balance sheet as of December 31, 2018.

Answer 1

Solution 1:
Kohler Corporation - Journal Entries
Date	Particulars	Debit	Credit
2-Jan	Treasury Stock, common Dr	$120,000.00
	To Cash		$120,000.00
	(Being 6000 shares of treasury stock purchased at $20 per share)
5-Jan	Retained Earnings Dr	$176,000.00
	To Common Dividend payable [(50000 - 6000)*4]		$176,000.00
	(Being dividend declared)
28-Feb	Common Dividend Payable Dr	$176,000.00
	To Cash		$176,000.00
	(Being dividend paid)
6-Jul	Cash A/c Dr (2250*$24)	$54,000.00
	To Treasury Stock, common (2250*20)		$45,000.00
	To Additional Paid in Capital (2250*$4)		$9,000.00
	(Being 2250 shares of treasury stock sold at $24 per share)
22-Aug	Cash A/c Dr (3750*17)	$63,750.00
	Additional Paid in Capital A/c Dr	$9,000.00
	Retained Earnings Dr (Balancing figure)	$2,250.00
	To Treasury Stock, common (3750*$20)		$75,000.00
	(Being 2500 shares of treasury stock sold at $17 per share)
5-Sep	Retained Earnings Dr	$200,000.00
	To Common Dividend payable (50000*4)		$200,000.00
	(Being dividend declared)
28-Oct	Common Dividend Payable Dr	$200,000.00
	To Cash		$200,000.00
	(Being dividend paid)
31-Dec	Income summary Dr	$388,000.00
	To Retained Earnings		$388,000.00
	(Being income transferred to retained earnings)

Solution 2:
Kohler Corporation - Statement of Retained Earnings on 31.12.2018
Particulars	Amount
Opening balance	$460,000.00
Add: Income for 2018	$388,000.00
	$848,000.00
Less: Dividend Paid	-$376,000.00
Less: Loss on sale of treasury stock	-$2,250.00
Ending balance of Retained Earnings	$469,750.00

Solution 3:
Stockholder Equity Section of Balance sheet
Kohler Corporation at December 31, 2018
Particulars	Amount
Stockholders Equity:
Common stock—$10 par value, 100,000 shares authorized, 50,000 shares issued and outstanding	$500,000.00
Paid-in capital in excess of par value, common stock	$80,000.00
Total contributed Capital	$580,000.00
Retained Earnings	$469,750.00
Total Stockholder's Equity	$1,049,750.00