Question

The balance sheet of Consolidated Paper, Inc., included the following shareholders’ equity accounts at December 31, 2017:

Paid-in capital:
Preferred stock, 8.0%, 83,000 shares at $1 par	$	83,000
Common stock, 333,300 shares at $1 par		333,300
Paid-in capital—excess of par, preferred		1,455,000
Paid-in capital—excess of par, common		2,505,000
Retained earnings		8,345,000
Treasury stock, at cost; 3,300 common shares		(36,300	)
Total shareholders' equity	$	12,685,000

During 2018, several events and transactions affected the retained earnings of Consolidated Paper.

Required:
1. Prepare the appropriate entries for these events.

On March 3 the board of directors declared a property dividend of 215,000 shares of Leasco International common stock that Consolidated Paper had purchased in January as an investment (book value: $632,000). The investment shares had a fair value of $3 per share and were distributed March 31 to shareholders of record March 15.

On May 3 a 5-for-4 stock split was declared and distributed. The stock split was effected in the form of a 25% stock dividend. The market value of the $1 par common stock was $11 per share.

On July 5 a 1% common stock dividend was declared and distributed. The market value of the common stock was $11 per share.

On December 1 the board of directors declared the 8.0% cash dividend on the 83,000 preferred shares, payable on December 28 to shareholders of record December 20.

On December 1 the board of directors declared a cash dividend of $0.40 per share on its common shares, payable on December 28 to shareholders of record December 20.

2. Prepare the shareholders' equity section of the balance sheet for Consolidated Paper, Inc., at December 31, 2018. Net income for the year was $730,000.

Answer 1

Answer 1.
	Journal Entry
S. No.	Date	Particulars	Dr. Amt.	Cr. Amt.
a-1	3-Mar	Investment in Leasco International Stock	13,000.00		(215,000 Shares X $3) - $632,000
		Gain on Appreciation of Investments		13,000.00
		(To record the gain on appreciation of Investments)
a-2	3-Mar	Retained Earnings	632,000.00
		Property Dividends Payable		632,000.00
		(To record the property dividend declared)
a-3	15-Mar	No Journal entry
a-4	31-Mar	Property Dividends Payable	632,000.00
		Investment in Leasco International Stock		632,000.00
		(To record the property dividend paid)
b	3-May	Paid in Capital - Excess of Par - Common	82,500.00		25% X (333,300 Shares - 3,300 Shares) X $1
		Common Stock		82,500.00
		(To record the Common Stock dividend declared & paid)
c	5-Jul	Retained Earnings	45,375.00		4,125 Shares X $11
		Common Stock		4,125.00	4,125 Shares X $1
		Paid in Capital - Excess of Par - Common		41,250.00	4,125 Shares X $10
		(To record the Common Stock dividend declared & paid)
		Stock Dividend - Shares = 1% X (330,000 Shares + 82,500 Shares)
		Stock Dividend - Shares = 4,125 Shares
d-1	1-Dec	Retained Earnings	6,640.00		$83,000 X 8%
		Cash Dividends Payable - Preference		6,640.00
		(To record the preference dividend declared)
d-2	20-Dec	No entry
d-3	28-Dec	Cash Dividends Payable - Preference	6,640.00
		Cash		6,640.00
		(To record the preference dividend paid)
e-1	1-Dec	Retained Earnings	166,650.00		$0.40 X (330,0000 sh. + 82,500 sh. + 4,125 sh.)
		Cash Dividends Payable - Common		166,650.00
		(To record the common dividend declared)
e-2	20-Dec	No entry
e-3	28-Dec	Cash Dividends Payable - Common	166,650.00
		Cash		166,650.00
		(To record the common dividend paid)

Answer 2.
CONSOLIDATED PAPER INC.
(Shareholders' Equity Section)
Dec 31, 2018
Shareholders' Equity
Paid-in Capital
Preferred Stock, 8%, 83,000 Shares at $1 par	83,000.00
Common Stock, 419,925 Shares at $1 par	419,925.00
Paid-in Capital Excess of par - Preferred	1,455,000.00
Paid-in Capital Excess of par - Common	2,463,750.00
Total Paid-in Capital	4,421,675.00
Retained Earnings	8,224,335.00
Treasury Stock, 3,300 shares	(36,300.00)
Total Shareholders' Equity	12,609,710.00
Paid-in Capital Excess of Par - Common = $2,505,000 -$82,500 +$41,250
Paid-in Capital Excess of Par - Common = $2,667,250
Retained Earnings = $8,345,000 - $632,000 - $45,375 - $6,640 - $166,650 + $730,000
Retained Earnings = $8,224,335