Question

The balance sheet of Consolidated Paper, Inc., included the following shareholders’ equity accounts at December 31, 2017: Paid-in capital: Preferred stock, 8.8%, 95,000 shares at $1 par $ 95,000 Common stock, 454,500 shares at $1 par 454,500 Paid-in capital—excess of par, preferred 1,565,000 Paid-in capital—excess of par, common 2,615,000 Retained earnings 9,445,000 Treasury stock, at cost; 4,500 common shares (49,500 ) Total shareholders' equity $ 14,125,000 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 275,000 shares of Leasco International common stock that Consolidated Paper had purchased in January as an investment (book value: $800,000). 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 3% 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 8.8% cash dividend on the 95,000 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 $850,000.

Answer 1

Requirement 1:

In the books of Consolidated Paper Inc. :

Date	Account Titles	Debit	Credit
2018		$	$
March 3	Investment in Leasco International	25,000
	Gain on revaluation of investment [( 275,000 x $ 3) - $ 800,000 ]		25,000
March 3	Retained Earnings	825,000
	Property Dividend Payable		825,000
March 15	No entry required
March 31	Property Dividend Payable	825,000
	Investment in Leasco International		825,000
May 3	Retained Earnings [( 454,500 - 4,500) ] x 25% x $ 1	112,500*
	Common Stock		112,500
July 5	Retained Earnings [ (450,000 + 112,500) x 3%] x $ 11	185,625
	Common Stock		16,875
	Paid-in Capital in Excess of Par: Common		168,750
December 1	Retained Earnings	8,360
	Dividends Payable: Preferred Stock		8,360
December 1	Retained Earnings (450,000 + 112,500 + 16,875) x $ 0.40	231,750
	Dividends Payable : Common Stock		231,750
December 20	No entry required
December 28	Dividends Payable: Preferred Stock	8,360
	Dividends Payable: Common Stock	231,750
	Cash		240,110
December 31	Income Summary	850,000
	Retained Earnings		850,000

* May 3: This is a large stock dividend, and therefore should be recorded at par value.

Requirement 2:

Consolidated Paper Inc.

Balance Sheet ( Partial)

December 31, 2018

Stockholders' Equity	$
Paid-in Capital
Preferred Stock, 8.8% 95,000 shares at $ 1 par	95,000
Common Stock, 583,875 shares at $ 1 par	583,875
Paid-in Capital - Excess of Par : Preferred	1,565,000
Paid -in Capital - Excess of Par : Common	2,783,750
Total Paid-in Capital	5,027,625
Retained Earnings	8,931,765
Treasury Stock at cost ( 4,500 common shares)	(49,500)
Total Stockholders' Equity	13,909,890

Workings:

Retained Earnings:

	Debit	Credit	Balance
Beginning balance			9,445,000 Cr.
Mar 3	825,000
May 3	112,500
July 5	185,625
Dec 1	8,360
Dec 1	231,750
Dec 31		850,000	8,931,765 Cr.