Question

Kohler Corporation reports the following components of stockholders’ equity at December 31, 2018.

Common stock—$10 par value, 100,000 shares authorized, 55,000 shares issued and outstanding	$	550,000
Paid-in capital in excess of par value, common stock		80,000
Retained earnings		370,000
Total stockholders' equity	$	1,000,000

During 2019, the following transactions affected its stockholders’ equity accounts.

Jan.		2		Purchased 6,000 shares of its own stock at $20 cash per share.
Jan.		5		Directors declared a $2 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 $2 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.
2. Prepare a statement of retained earnings for the year ended December 31, 2019.
3. Prepare the stockholders’ equity section of the company’s balance sheet as of December 31, 2019.

Answer 1

1
Date	General Journal	Debit	Credit
1-Jan	Treasury stock, Common	120,000		=6000*20
	Cash		120,000
5-Jan	Retained earnings	98,000		=(55000-6000)*2
	Common dividend payable		98,000
28-Feb	Common dividend payable	98,000
	Cash		98,000
6-Jul	Cash	54,000		=2250*24
	Treasury stock, Common		45,000	=2250*20
	Paid-in capital, Treasury stock		9,000
22-Aug	Cash	63,750		=3750*17
	Paid-in capital, Treasury stock	9,000
	Retained earnings	2,250
	Treasury stock, Common		75,000	=3750*20
5-Sep	Retained earnings	110,000		=55000*2
	Common dividend payable		110,000
28-Oct	Common dividend payable	110,000
	Cash		110,000
31-Dec	Income summary	388,000
	Retained earnings		388,000
2
	KOHLER CORPORATION
	Statement of Retained Earnings
	For Year Ended December 31, 2019
	Retained earnings, Dec. 31, 2018	370,000
	Add: Net income	388,000
		758,000
	Less: Cash dividends declared	-208,000
	Less: Treasury stock reissuances	-2,250
	Retained earnings, Dec. 31, 2019	547,750
3
	KOHLER CORPORATION
	Stockholders' Equity Section of the Balance Sheet
	December 31, 2019
	Common stock - $10 par value	550,000
	Paid-in capital in excess of par value, common stock	80,000
	Total contributed capital	630,000
	Retained earnings	547,750
	Total stockholders' equity	1,177,750