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

The balance sheet of Consolidated Paper, Inc., included the following shareholders’ equity accounts at December 31, 2020:

Paid-in capital:
Preferred stock, 7.5%, 98,000 shares at $1 par $ 98,000
Common stock, 484,800 shares at $1 par 484,800
Paid-in capital—excess of par, preferred 1,595,000
Paid-in capital—excess of par, common 2,645,000
Retained earnings 9,745,000
Treasury stock, at cost; 4,800 common shares (52,800 )
Total shareholders' equity $ 14,515,000


During 2021, several events and transactions affected the retained earnings of Consolidated Paper.

Required:
1. Prepare the appropriate entries for these events. THERE SHOULD BE 12 TOTAL JOURNAL ENTRIES.

  1. On March 3, the board of directors declared a property dividend of 290,000 shares of Leasco International common stock that Consolidated Paper had purchased in January as an investment (book value: $552,000). The investment shares had a fair value of $2 per share and were distributed March 31 to shareholders of record March 15.
  2. 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.
  3. On July 5, a 1% common stock dividend was declared and distributed. The market value of the common stock was $11 per share.
  4. On December 1, the board of directors declared the 7.5% cash dividend on the 98,000 preferred shares, payable on December 28 to shareholders of record December 20.
  5. On December 1, the board of directors declared a cash dividend of $0.50 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, 2021. Net income for the year was $880,000.

Prepare the shareholders' equity section of the balance sheet for Consolidated Paper, Inc. at December 31, 2021. Net income for the year was $880,000. (Negative amounts should be indicated by a minus sign.)
CONSOLIDATED PAPER, INC.
[Shareholders’ Equity section]
December 31, 2021
Paid-in capital:
? ?
? ?
? ?
? ?
? ?
? ?
Total shareholders’ equity $0

Solutions

Expert Solution

1.

No. Date General Journal Debit Credit
1 March 03 Investment in Leasco International 28000
Gain on appreciation [(290000 x $2) - $552000] 28000
(To record investment at fair value)
2 March 03 Retained earnings 580000
Dividends payable 580000
(To record declaration of property dividend)
3 March 15 No journal entry required
4 March 31 Dividends payable 580000
Investment in Leasco International 580000
(To record distribution of property dividend)
5 May 03 Paid-in capital -excess of par, common stock 120000
Common stock [(25% x 480000) x $1] 120000
(To record declaration and distribution of stock dividend)
6 July 05 Retained earnings [1% x (480000 + 120000) x $11] 66000
Common stock [1% x (480000 + 120000) x $1] 6000
Paid-in-capital-excess of par, common stock 60000
(To record declaration and distribution of stock dividend)
7 December 01 Retained earnings 7350
Dividends payable ($98000 x 7.5%) 7350
(To record declaration of cash dividends on preferred stock)
8 December 20 No journal entry required
9 December 28 Dividends payable 7350
Cash 7350
(To record distribution of preferred cash dividends)
10 December 01 Retained earnings 303000
Dividends payable [$0.50 x (480000 + 120000 + 6000)] 303000
(To record declaration of cash dividends on common stock)
11 December 20 No journal entry required
12 December 28 Dividends payable 303000
Cash 303000
(To record distribution of cash dividends on common stock)

Please note: Treasury stocks are excluded for all computations of dividends.

2.

CONSOLIDATED PAPER, INC.,
[Shareholders' Equity section]
December 31, 2021
Paid-in capital:
Preferred stock, 7.5%, 98,000 shares at $1 par 98000
Common stock, 610,800 shares at $1 par 610800
Paid-in capital-excess of par, preferred 1595000
Paid-in capital-excess of par, common 2525000
Retained earnings 9668650
Treasury stock, at cost; 4,000 common shares -52800
Total shareholders' equity 14444650

Working:

Retained earnings, beginning balance 9745000
Add: Net income 880000
10625000
Less: Property dividend -580000
Less: Stock dividends -66000
Less: Cash dividend-preferred -7350
Less: Cash dividend-common -303000
Retained earnings, ending balance 9668650

ekkarill92 answered 1 year ago
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