Question

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

Common stock—$25 par value, 50,000 shares authorized,

30,000 shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . $ 750,000

Paid-in capital in excess of par value, common stock . . . . . . . . . . . . . . . 50,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340,000

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,140,000

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

Jan. 2 Purchased 3,000 shares of its own stock at $25 cash per share.

Jan. 7 Directors declared a $1.50 per share cash dividend payable on February 28 to the February 9 stockholders of record.

Feb. 28 Paid the dividend declared on January 7.

July 9 Sold 1,200 of its treasury shares at $30 cash per share.

Aug. 27 Sold 1,500 of its treasury shares at $20 cash per share.

Sep. 9 Directors declared a $2 per share cash dividend payable on October 22 to the September 23 stockholders of record.

Oct. 22 Paid the dividend declared on September 9.

Dec. 31 Closed the $52,000 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

Step 1: Definition of common stock

The common stock is the stock whose stockholders get voting right in the company. The common stockholders get dividends at the end after the payment of the dividend to the preferred stockholders.

Step 2: Recording of Entries

Date	Particulars	Debit	Credit
January 02	Treasury Stock, Common	$75,000
	Cash		$75,000
	(Purchased 3,000 common shares at $25 per share)
January 07	Retained Earnings	$45,000
	Common Dividend Payable		$45,000
	(Declared $1.5 per common share cash dividend)
February 28	Common Dividend Payable	$45,000
	Cash		$45,000
July 9	Cash	$36,000
	Treasury Stock, Common		$30,000
	Paid-In Capital, Treasury Stock		$6,000
	(Received $30 per share for 1200 treasury shares costing $25 per share)
August 27	Cash	$30,000
	Paid-In Capital, Treasury Stock	$6,000
	Retained Earnings	$1,500
	Treasury Stock, Common		$37,500
	(Received $20 per share for 1500 treasury shares costing $25 per share)
September 09	Retained Earnings	$60,000
	Common Dividend Payable		$60,000
	(Declared $2 per common share cash dividend)
October 22	Common Dividend Payable	$60,000
	Cash		$60,000
	(Paid $2 per common share cash dividend)

 

Step 3: Statement of Retained Earnings

 

Alexander Corporation
Statement of Retained Earnings
For Year Ended December 31, 2017
Retained Earnings as at December 31, 2016	$ 340,000
Add: Net Income for the year	52,000
Less: Loss of sale of treasury stock	(1,500)
Less: Cash Dividend (45,000+60,000)	(105,000)
Add: Dividend on treasury stock (1.5*3000) + (2*300)	5,100
Retained Earnings as at December 31, 2017	$ 290,600

 

Step 4: Stockholders’ Equity    

	Amount
Common stock—$25 par value, 50,000 shares authorized, 30,000 shares issued and outstanding	$ 750,000
Paid-in capital in excess of par value, common stock	50,000
Retained Earnings	$ 290,600
Less: Cost of treasury stock(25*300)	(7,500)
Total stockholders’ equity	$ 1,083,100

 

 

2. The amount of retained earnings is $290,600.

3. The amount od stockholder equity is $1,083,100