Question

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

Common stock—$15 par value, 100,000 shares authorized, 45,000 shares issued and outstanding $ 675,000 Paid-in capital in excess of par value, common stock 80,000 Retained earnings 400,000 Total stockholders' equity $ 1,155,000

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

Jan. 1 Purchased 4,500 shares of its own stock at $15 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 1,688 of its treasury shares at $19 cash per share.

Aug. 22 Sold 2,812 of its treasury shares at $12 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 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

Answer 1) Using par value method for accounting for Treasury stock:

Journal entries to record transactions for 2017:

Date	Account titles and explanations	Debit	credit
Jan 01	Treasury stock	$ 67,500	-
-	Cash	-	$ 67,500
-	( purchase of 4500 shares of its own stock for $ 15 each )	-	-
Jan 05	Retained earnings( 40,500 * $4)	$ 162,000	-
-	Dividend payable	-	$ 162,000
-	( declaration of cash dividend @ $ 4 per share on 40,500 shares)	-	-
Feb 28	Dividend payable	$ 162,000	-
-	Cash	-	$ 162,000
-	( payment of dividend declared on Jan 05 )	-	-
July 06	Cash	$ 32,072	-
-	Treasury stock	-	$ 25,320
-	Additional paid-in capital in excess of par value	-	$ 6,752
-	( sold 1688 shares on treasury stock at $19 )	-	-
Aug 22	Cash	$ 33,744	-
-	Additional paid-in capital	$ 8,436	-
-	Treasury stock	-	$ 42,180
-	( sold 2812 shares on treasury stock at $ 12 each )	-	-
Sept 05	Retained earnings( 45,000 * $4)	$ 180,000	-
-	Dividend payable	-	$ 180,000
-	( declaration of cash dividend @ $ 4 per share on 45,000 shares)	-	-
Oct 28	Dividend payable	$ 180,000	-
-	Cash	-	$ 180,000
-	( payment of dividend declared on Sept 05 )	-	-
Dec 31	Income summary	$ 388,000	-
-	Retained earnings	-	$ 388,000
-	( transfer of net income to retained earnings)	-	-

Answer 2)

KOHLER CORPORATION STATEMENT OF RETAINED EARNINGS FOR THE YEAR ENDING 31ST DECEMBER 2017
Retained earnings – as on 1st Jan 2017	$ 400,000
Less : dividend on Feb 28	$ 162,000
Less : dividend on Oct 28	$ 180,000
Add : Net income	$ 388,000
Retained earnings – 31st December 2017	$ 446,000

Answer 3)

Equity section of balance sheet as of December 31
Common stock—$15 par value, 100,000 shares authorized, 45,000 shares issued and outstanding	$ 675,000
Less; cost of treasury stock	$ 67,500
Add: issue from treasury stock ( 25,320 + 42180 )	$ 67,500
Common stock on 31st December	$ 675,000
Retained earnings	$ 446,000
Additional paid-in capital in excess of par value on 1st Jan	$ 80,000
Add: issue of treasury stock on July 06	$ 6,752
Less: issue of treasury stock on Aug 22	$ 8,436
Additional paid-in capital in excess of par value on 31st December	$ 78,316
Total ( 675,000 + 446,000 + 78,316 )	$ 1,199,316