Question

Morrow Enterprises Inc. manufactures bathroom fixtures. The stockholders’ equity ac- counts of Morrow Enterprises Inc., with balances on January 1, 2016, are as follows:

Common Stock, $20 stated value (500,000 shares authorized, 375,000 shares issued) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Paid-In Capital in Excess of Stated Value—Common Stock . . . . . . . . . . . . Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury Stock (25,000 shares, at cost) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The following selected transactions occurred during the year:

$ 7,500,000 825,000 33,600,000 450,000

Jan. 22.

Apr. 10. June 6. July 5.

Aug. 15. Nov. 23. Dec. 28.

Paid cash dividends of $0.08 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $28,000.

Issued 75,000 shares of common stock for $24 per share. Sold all of the treasury stock for $26 per share.

Declared a 4% stock dividend on common stock, to be capitalized at the mar- ket price of the stock, which is $25 per share.

Issued the certificates for the dividend declared on July 5. Purchased 30,000 shares of treasury stock for $19 per share. Declared a $0.10-per-share dividend on common stock.

31. Closed the credit balance of the income summary account, $1,125,000. 31. Closed the two dividends accounts to Retained Earnings

Instructions

1. Enter the January 1 balances in T accounts for the stockholders’ equity accounts listed. Also prepare T accounts for the following: Paid-In Capital from Sale of Treasury Stock; Stock Dividends Distributable; Stock Dividends; Cash Dividends.

2. Journalize the entries to record the transactions, and post to the eight selected accounts. 3. Prepare a retained earnings statement for the year ended December 31, 2016. 4. Prepare the Stockholders’ Equity section of the December 31, 2016, balance sheet.

Answer 1

Common Stock
		Jan-1 Bal	7500000
		Apr-10	1500000
		Aug-15	360000
Dec-31	9360000
	9360000		9360000
Treasury Stock
Jan-1 Balance	450000	Jun-06	450000
Nov-23	570000
		Dec 31 Bal	570000
	1020000		1020000
Paid in Capital in excess of stated value
		Jan 1 Bal	825000
		Apr-10	300000
		Jul-05	90000
Dec-31	1215000
	1215000		1215000
Paid in Capital fom treasury Stock
		Jun-06	200000
Dec-31	200000
	200000		200000
Stock Dividend Distributable
Aug-15	360000	Jul-05	360000
	360000		360000
Stock Dividend
Jul-05	450000	Dec-31	450000
	450000		450000
Cash Dividend
Dec-28	43800	Dec-31	43800
	43800		43800
Retained Earning
Dec-31	493800	Jan-01	33600000
Dec-31	34231200	Dec-31	1125000
	34725000		34725000
	Journal Entry
	Date	Particulare	Debit	Credit
	Jan-22	Dividend Distributable	28000
		To Cash		28000
		( to record cash payment of dividend declared earlier.)
	Apr-10	Cash	1800000
		Common Stock		1500000
		Paid in capital in excess of stated value		300000
		( To record issue of common stock at 24)
	Jun-06	Cash	650000
		Treasury Stock		450000
		Paid in capital from Treasury stock		200000
		( To record sale of treasury stock at 26)
	Jul-05	Stock Dividend	450000
		Dividend Distributable		360000
		Paid in Capital in excess of Stated Value		90000
		( to record dividend declred )
	Aug-15	Stock Dividend Distributable	360000
		Common Stock		360000
		(To record issuence of certificate)
	Nov-23	Treasury Stock	570000
		To Cash		570000
		( to record purchase of treasury Stock)
	Dec-28	Cash Dividend	43800
		Dividend Distributable		43800
		( To record Declaration of dividend on common stock)
	Dec-31	Retained Earning	493800
		To Cash Dividen		43800
		To Stock Dividend		450000
		( to close the dividend accounts to retained earning)
	Dec-31	Income Summary	1125000
		To retained Earning		1125000
		( Closed the credit balance of the income summary account, $1,125,000 )
Shareholder's equity Account as at Dec-31
Paid-in Capital
Common Stock, $20 stated value (500,000 shares authorized, 468000 shares issued)	9360000
Paid-In Capital in Excess of Stated Value—Common Stock	1215000
Retained Earnings	34231200
	44806200
Less
Treasury Stock (30,000 shares, at cost)	570000
Painin Capital from Treasury stock	200000
Total Shareholder,s Equity	44036200
Retained Earnings as at Dec-31
Retained earnings on Jan-1	33600000
Net Income	1125000
Less
Cash Dividend	43800
Stock Dividend	450000
Retainind Earnings As at 31 Dec	34231200
Note-
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