Question

Exercise 18-23 Transactions affecting retained earnings [LO18-6, 18-7, 18-8]

The balance sheet of Consolidated Paper, Inc., included the following shareholders’ equity accounts at December 31, 2015:

Paid-in capital:
Preferred stock, 8.0%, 93,000 shares at $1 par	$	93,000
Common stock, 434,300 shares at $1 par		434,300
Paid-in capital—excess of par, preferred		1,545,000
Paid-in capital—excess of par, common		2,595,000
Retained earnings		9,245,000
Treasury stock, at cost; 4,300 common shares		(51,600	)
Total shareholders' equity	$	13,860,700

During 2016, several events and transactions affected the retained earnings of Consolidated Paper.

Required:

1.	Prepare the appropriate entries for these events. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

a.	On March 3 the board of directors declared a property dividend of 265,000 shares of Leasco International common stock that Consolidated Paper had purchased in January as an investment (book value: $772,000). The investment shares had a fair value of $3 per share and were distributed March 31 to shareholders of record March 15.
b.	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 $12 per share.
c.	On July 5 a 2% common stock dividend was declared and distributed. The market value of the common stock was $12 per share.
d.	On December 1 the board of directors declared the 8.0% cash dividend on the 93,000 preferred shares, payable on December 28 to shareholders of record December 20.
e.	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, 2016. Net income for the year was $830,000. (Negative amounts should be indicated by a minus sign.)

Answer 1

SOLUTION

1. Journal Entries-

S.No.	Date	Account titles and Explanation	Debit ($)	Credit ($)
1.	Mar.3	Investment in Leasco [(265,000 * $3) - $772,000]	23,000
		Gain in Revaluation of Leasco		23,000
		Retained earnings (265,000 * $3)	795,000
		Property dividends payable		795,000
	Mar.15	No entry required
	Mar.31	Property dividends payable	795,000
		Investment in Leasco International stock		795,000
2.	May 3	Retained Earnings [(434,300 - 4,300) * 25% * $1]	107,500
		Common stock		107,500
3.	July 5	Retained earnings [(430,000+107,500)*2%*$12]	129,000
		Common stock (10,750 * $1)		10,750
		Paid-in capital - excess of par, common		118,250
4.	Dec.1	Retained earnings	7,440
		Cash dividends payable (93,000 * 8%)		7,440
	Dec.20	No entry required
	Dec.28	Cash dividends payable	7,440
		Cash		7,440
5.	Dec.1	Retained earnings	274,125
		Cash dividends payable [(430,000+107,500+10,750)* $0.50]		274,125
	Dec.20	No entry required
	Dec.28	Cash dividends payable	274,125
		Cash		274,125