Question

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

Common stock—$20 par value, 100,000 shares authorized, 45,000 shares issued and outstanding	$	900,000
Paid-in capital in excess of par value, common stock		70,000
Retained earnings		400,000
Total stockholders' equity	$	1,370,000

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

Jan.		1		Purchased 5,500 shares of its own stock at $20 cash per share.
Jan.		5		Directors declared a $6 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 2,063 of its treasury shares at $24 cash per share.
Aug.		22		Sold 3,437 of its treasury shares at $17 cash per share.
Sept.		5		Directors declared a $6 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 $428,000 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

1. General Journal

Date	Account Title and Explanation	Debit	Credit
Jan.01	TreasuryStockCommon	$110,000
	Cash		$110,000
Jan.05	Retained Earnings	$237,000
	Common Dividend Payable (39,500×$6)		$237,000
Feb.28	Common Dividend Payable	$237,000
	Cash		$237,000
June.06	Cash (2063 ×$24)	$49,512
	Paid in Capital Treasury Stock (2063×$4)		$8,252
	Treasury Stock Common (2,063 × $20)		$41,260
Aug.22	Cash (3,437 ×$17)	$58,429
	Paid in Capital Treasury Stock	$8,252
	Retained Earnings	$2,059
	Treasury Stock Common (3,437×$20)		$68,740
Sep.05	Retained Earnings	$270,000
	Common Dividend Payable (45,000 × $6)		$270,000
Oct.28	Common Dividend Payable	$270,000
	Cash		$270,000
Dec.31	Income Summary	$428,000
	Retained Earnings		$428,000

2 KOHLER CORPORATION Statement of Retained Earnings    For Year Ended December 31,2018   

Retained Earnings Dec.31,2017	$400,000
Add: Net Income	$428,000
	$828,000
Less: Cash Dividend Declared ($237,000 + $270,000)	$(507,000)
Less: Treasury Stock Reissuances	$(2,059)
Retained Earnings Dec.31,2018	$318,941

3. KOHLER CORPORATION Stockholders Equity Section of the Balance Sheet

Common Stock - $20 Per Value	$900,000
Paid in Capital Excess of Par Value , Common Stock	$70,000
Total Contributed Capital	$970,000
Retained Earnings	$318,941
Total Stockholders Equity	$1,288,941