Question

Morrow Enterprises Inc. manufactures bathroom fixtures. Morrow Enterprises’ stockholders’ equity accounts, with balances on January 1, 20Y6, are as follows:

Common Stock, $10 stated value (800,000 shares authorized, 520,000 shares issued)	$5,200,000
Paid-In Capital in Excess of Stated Value-Common Stock	1,000,000
Retained Earnings	11,800,000
Treasury Stock (52,000 shares, at cost)	780,000

The following selected transactions occurred during the year:

Jan. 22.	Paid cash dividends of $0.12 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $56,160.
Apr. 10.	Issued 100,000 shares of common stock for $1,800,000.
June 6.	Sold all of the treasury stock for $18 per share.
July 5.	Declared a 4% Stock dividend on common stock, to be capitalized at the market price of the stock, which is $20 per share.
Aug. 15.	Issued shares of stock for the stock dividend declared on July 5.
Nov. 23.	Purchased 33,000 shares of treasury stock for $20 per share.
Dec. 28.	Declared a $0.15-per-share dividend on common stock.
31.	Closed the credit balance of the income summary account, $12,272,000.
31.	Closed the two dividends accounts to Retained Earnings.

Required:

1. The January 1 balances have been entered in T accounts for the stockholders' equity accounts. Record the above transactions in the T accounts and provide the December 31 balance where appropriate. If required, round to one decimal place.

Common Stock
		Jan. 1 Bal.	5,200,000
		Dec. 31 Bal.

Paid-In Capital in Excess of Stated Value-Common Stock
		Jan. 1 Bal.	1,000,000
		Dec. 31 Bal.

Retained Earnings
		Jan. 1 Bal.	11,800,000
		Dec. 31 Bal.

Treasury Stock
Jan. 1 Bal.	780,000
Dec. 31 Bal.

Paid-In Capital from Sale of Treasury Stock

Stock Dividends Distributable

Stock Dividends

Cash Dividends

2. Journalize the entries to record the transactions. For a compound transaction, if an amount box does not require an entry, leave it blank.

Jan. 22. Paid cash dividends of $0.12 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $56,160.

Date	Account	Debit	Credit
Jan. 22

Apr. 10. Issued 100,000 shares of common stock for $1,800,000.

Date	Account	Debit	Credit
Apr. 10

June 6. Sold all of the treasury stock for $18 per share.

Date	Account	Debit	Credit
June 6

July 5. Declared a 4% stock dividend on common stock, to be capitalized at the market price of the stock, which is $20 per share.

Date	Account	Debit	Credit
July 5

Aug. 15. Issued shares of stock for the dividend declared on July 5.

Date	Account	Debit	Credit
Aug. 15

Nov. 23. Purchased 33,000 shares of treasury stock for $20 per share.

Date	Account	Debit	Credit
Nov. 23

Dec. 28. Declared a $0.15-per-share dividend on common stock.

Date	Account	Debit	Credit
Dec. 28

Dec. 31. Closed the credit balance of the income summary account, $12,272,000.

Date	Account	Debit	Credit
Dec. 31

Dec. 31. Closed the two dividends accounts to Retained Earnings.

Date	Account	Debit	Credit
Dec. 31

3. Prepare a retained earnings statement for the year ended December 31, 20Y6.

Morrow Enterprises Inc. Retained Earnings Statement For the Year Ended December 31, 20Y6

4. Prepare the Stockholders' Equity section of the December 31, 20Y6, balance sheet.

Morrow Enterprises Inc. Balance Sheet December 31, 20Y6
Stockholders' Equity
Paid-In-Capital:
Total Paid-In Capital
Total
Total Stockholders' Equity

Answer 1

1			Common stock
	Particulars		Debit	Particulars		Credit
				Jan 1. Bal.		5200000
				Apr 10. Cash		1000000
				Aug 15.stock dividend distributable		248000
	Dec 31. Balance		6448000
			6448000			6448000
	Paid-In Capital in Excess of Stated Value-Common Stock
	Particulars		Debit	Particulars		Credit
				Jan 1. Bal.		1000000
				Apr 10. Cash		800000
	Dec 31. Balance		2048000	July 5. Stock dividend		248000
			2048000			2048000
			Retained earnings
	Particulars		Debit	Particulars		Credit
	Dec 31. Stock dividends		496000	Jan 1. Bal.		11800000
	Dec 31. cash dividends		91770	Dec 31.Income summary		12272000
	Dec 31.Bal.		23484230
			24072000			24072000
			Treasury stock
	Particulars		Debit	Particulars		Credit
	Jan 1. Bal.		780000	June 6. Cash		780000
	Nov 23.cash		660000	Dec 31.Bal.		660000
			1440000			1440000
		Paid-In Capital from Sale of Treasury Stock
	Particulars		Debit	Particulars		Credit
	Dec 31.Bal.		156000	June 6. Cash		156000
			156000			156000
			Stock Dividends Distributable
	Particulars		Debit	Particulars		Credit
	Aug 15.Common stock		248000	July 5. Stock dividend		248000
			248000			248000
			Stock Dividends
	Particulars		Debit	Particulars		Credit
	July 5.Paid-In Capital in Excess of Stated Value-Common Stock		248000	Dec 31. Retained earnings		248000
			248000			248000
			Cash Dividends
	Particulars		Debit	Particulars		Credit
	Dec 28. cash dividend payable		91770	Dec 31. Retained earnings		91770
			91770			91770
2	Date	Account			Debit	Credit
	Jan 22.	Cash dividend payable			56160
		Cash				56160
		(Paid cash dividends)
	Apr 10.	Cash			1800000
		Common stock (100000*10)				1000000
		Paid-In Capital in Excess of Stated Value-Common Stock				800000
		(balancing figure)
		( Issued 100,000 shares)
	June 6.	Cash	(52000*18)		936000
		Treasury stock				780000
		Paid-In Capital from Sale of Treasury Stock				156000
		(Sold all of the treasury stock)
	July 5.	Stock dividends		(Note:1)	496000
		Stock dividends distributable				248000
		Paid-In Capital in Excess of Stated Value-Common Stock				248000
		(Declared a 4% Stock dividend on common stock)
	Aug 15.	Stock dividends distributable			248000
		Common stock				248000
		(Issued shares of stock for the dividend declared on July 5)
	Nov 23.	Treasury stock	(33000*20)		660000
		Cash				660000
		( Purchased 33,000 shares of treasury stock)
	Dec 28.	Cash dividend		(Note:2)	91770
		Cash dividend payable				91770
		(Declared a $0.15-per-share dividend)
	Dec 31.	Income summary			12272000
		Retained earnings				12272000
		(Closed the credit balance of the income summary account)
	Dec 31.	Retained earnings			587770
		Stock dividends				496000
		Cash dividend				91770
		(Closed the two dividends accounts)
	Note:1-Stock dividend on July 5.
	Common stock shares outstanding on July 5:
	Beginnning balance
	Common stock				520000
	Trasury stock				-52000	468000
	Shares issued					100000
	Treasry stock sold					52000
	Common stock shares outstanding on July 5					620000
	Stock dividend=620000*4%*20=$ 496000
	Stock dividend distributable @ par value=620000*4%*10=$ 248000
	Note:2- Cash dividend payable
	Common stock shares outstanding on Dec 28:
	Common stock shares outstanding on July 5					620000
	Stock dividend issued		(620000*4%)			24800
	Trasury stock purchased					-33000
	Common stock shares outstanding on Dec 28					611800
	Cash dividend=611800*0.15=$ 91770
3	Retained earnings statement
	Beginning balance			11800000
	Add: net income			12272000
				24072000
	Less: Dividends declared
	Stock dividend		496000
	Cash dividend		91770	587770
	Ending balance			23484230
4		Balance sheet
	Shareholder's equity section
				$
	Paid in capital:
	Common stock,$10 par value,800000 shares authorized,644800 shares issued
	and 611800 shares outstanding			6448000
	Paid-In Capital in Excess of Stated Value-Common Stock			2048000
	Paid-In Capital from Sale of Treasury Stock			156000
	Total Paid in capital			8652000
	Retained earnings			613000
				9265000
	Less: Treasury stock (33000 shares)			660000
	Total shareholder's equity			8605000