Question

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

Common stock, $20 stated value; 500,000 shares authorized, 352,000 issued	$7,040,000
Paid-In Capital in Excess of Stated Value—Common Stock	774,400
Retained Earnings	32,153,000
Treasury Stock (25,200 shares, at cost)	478,800

The following selected transactions occurred during the year:

Jan.	22	Paid cash dividends of $0.05 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $16,340.
Apr.	10	Issued 73,000 shares of common stock for $25 per share.
Jun.	6	Sold all of the treasury stock for $27 per share.
Jul.	5	Declared a 5% stock dividend on common stock, to be capitalized at the market price of the stock, which is $25 per share.
Aug.	15	Issued the certificates for the dividend declared on July 5.
Nov.	23	Purchased 25,000 shares of treasury stock for $18 per share.
Dec.	28	Declared a $0.08-per-share dividend on common stock.
	31	Closed the credit balance of the income summary account, $1,223,000.
	31	Closed the two dividends accounts to Retained Earnings.

	Required:
A.	Enter the January 1 balances in T accounts for the stockholders’ equity accounts listed.
B.	Journalize the entries to record the transactions, and post to the eight selected accounts. No post ref is required in the journal. Refer to the Chart of Accounts for exact wording of account titles.
C.	Prepare a retained earnings statement for the year ended December 31, 2016. Enter all amounts as positive numbers. The word “Less” is not required.*
D.	Prepare the Stockholders’ Equity section of the December 31, 2016, balance sheet. “Less” or “Deduct” will automatically appear if it is required. * * Refer to the list of Amount Descriptions provided for the exact wording of the answer choices for text entries.

Chart of Accounts

CHART OF ACCOUNTS
Morrow Enterprises Inc.
General Ledger
ASSETS 110 Cash 120 Accounts Receivable 131 Notes Receivable 132 Interest Receivable 141 Merchandise Inventory 145 Office Supplies 151 Prepaid Insurance 181 Land 193 Equipment 194 Accumulated Depreciation-Equipment LIABILITIES 210 Accounts Payable 221 Notes Payable 226 Interest Payable 231 Cash Dividends Payable 236 Stock Dividends Distributable 241 Salaries Payable 261 Mortgage Note Payable EQUITY 311 Common Stock 313 Paid-In Capital in Excess of Stated Value-Common Stock 315 Treasury Stock 321 Preferred Stock 322 Paid-In Capital in Excess of Par-Preferred Stock 331 Paid-In Capital from Sale of Treasury Stock 340 Retained Earnings 351 Cash Dividends 352 Stock Dividends 390 Income Summary	REVENUE 410 Sales 610 Interest Revenue EXPENSES 510 Cost of Merchandise Sold 515 Credit Card Expense 520 Salaries Expense 531 Advertising Expense 532 Delivery Expense 533 Selling Expenses 534 Rent Expense 535 Insurance Expense 536 Office Supplies Expense 537 Organizational Expenses 562 Depreciation Expense-Equipment 590 Miscellaneous Expense 710 Interest Expense

Amount Descriptions

Amount Descriptions
Cash balance, July 31, 2016
Common stock, $20 stated value; 500,000 shares authorized, 352,000 issued
Common stock, $20 stated value; 500,000 shares authorized, 421,250 issued
Common stock, $20 stated value; 500,000 shares authorized, 446,250 issued
Decrease in retained earnings
Dividends
Excess of issue price over stated value
For the Year Ended December 31, 2016
From sale of treasury stock
Increase in retained earnings
Net income
Net loss
Retained earnings
Retained earnings, December 31, 2016
Retained earnings, January 1, 2016
Total
Total paid-in capital
Total stockholders’ equity

T Accounts

A. Enter the January 1 balances in T accounts for the stockholders’ equity accounts listed. Post the journal entries from part B to the eight selected accounts. No post ref is required in the journal.

Common Stock
		Jan. 1 Bal.
		Apr. 10
		Aug. 15
		Dec. 31 Bal.

Paid-In Capital in Excess of Stated Value-Common Stock
		Jan. 1 Bal.
		Apr. 10
		Jul. 5
		Dec. 31 Bal.

Retained Earnings
Dec. 31		Jan. 1 Bal.
		Dec. 31
		Dec. 31 Bal.

Treasury Stock
Jan. 1 Bal.		Jun. 6
Nov. 23
Dec. 31 Bal.

Paid-In Capital from Sale of Treasury Stock
		Jun. 6

Stock Dividends Distributable
Aug. 15		Jul. 5

Stock Dividends
Jul. 5		Dec. 31

Cash Dividends
Dec. 28		Dec. 31

Journal

B. Journalize the entries to record the transactions. No post ref is required in the journal. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 10

JOURNAL

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22

Retained Earnings Statement

C. Prepare a retained earnings statement for the year ended December 31, 2016. Enter all amounts as positive numbers. The word “Less” is not required. Refer to the list of Amount Descriptions provided for the exact wording of the answer choices for text entries.

Morrow Enterprises

Retained Earnings Statement

For the Year Ended December 31, 2016

1
2
3
4
5

Stockholders’ Equity

D. Prepare the Stockholders’ Equity section of the December 31, 2016 balance sheet. “Less” or “Deduct” will automatically appear if it is required. Refer to the list of Amount Descriptions provided for the exact wording of the answer choices for text entries.

Stockholders’ Equity

1	Paid-in capital:
2
3
4
5
6
7
8
9

Answer 1

Answer A.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
22-Jan	Cash Dividends Payable	16,340.00
	Cash		16,340.00
	(record the cash dividend paid)
10-Apr	Cash	1,825,000.00		73,000 Shares X $25
	Common Stock		1,460,000.00	73,000 Shares X $20
	Paid in Capital in Excess of Stated Value - Common Stock		365,000.00	73,000 Shares X $5
	(record the issue of common stock)
6-Jun	Cash	680,400.00		25,200 Shares X $27
	Treasury Stock		478,800.00	25,200 Shares X $19
	Paid in Capital in Excess of Stated Value - Treasury Stock		201,600.00	25,200 Shares X $8
	(Record the issue of treasury stock)
5-Jul	Stock Dividends	531,250.00		425,000 Shares X 5% X $25
	Stock Dividends Distributable		425,000.00	21,250 Shares X $20
	Paid in Capital in Excess of Stated Value - Common Stock		106,250.00	21,250 Shares X $5
	(record the stock dividend declared)
15-Aug	Stock Dividends Distributable	425,000.00
	Common Stock		425,000.00
	(Record the common stock issued as stock dividends)
23-Nov	Treasury Stock	450,000.00		25,000 Shares X $18
	Cash		450,000.00	25,000 Shares X $18
	(record the purchase of treasury stock)
28-Dec	Cash Dividends	33,700.00		421,250 Shares X $0.08
	Cash Dividends Payable		33,700.00	421,250 Shares X $0.08
	(record the cash dividends declared)
31-Dec	Retained Earnings	564,950.00
	Stock Dividends		531,250.00
	Cash Dividends		33,700.00
	(Record the close of dividends accounts)
31-Dec	Income Summary	1,223,000.00
	Retained Earnings		1,223,000.00
	(Record the net income earned during the year)

Answer B.
Common Stock					Paid in Capital in Excess of Stated Value - Common Stock					Paid in Capital in Excess of Stated Value - Treasury Stock
Beg. Bal		7,040,000.00			Beg. Bal		774,400.00			Beg. Bal		-
		1,460,000.00	10-Apr				365,000.00	10-Apr				201,600.00	6-Jun
		425,000.00	15-Aug				106,250.00	5-Jul
End. Bal.		8,925,000.00			End. Bal.		1,245,650.00			End. Bal.		201,600.00
Cash Dividends Payable					Cash Dividends					Stock Dividends
Beg. Bal		16,340.00			Beg. Bal	-	33,700.00	31-Dec		Beg. Bal	-	531,250.00	31-Dec
22-Jan	16,340.00	33,700.00	28-Dec		28-Dec	33,700.00				5-Jul	531,250.00
End. Bal.		33,700.00			End. Bal.	-				End. Bal.	-
Stock Dividends Distributable					Retained Earnings					Treasury Stock
Beg. Bal		-			Beg. Bal		32,153,000.00			Beg. Bal	478,800.00	478,800.00	6-Jun
15-Aug	425,000.00	425,000.00	5-Jul		31-Dec	564,950.00	1,223,000.00	31-Dec		23-Nov	450,000.00
End. Bal.		-			End. Bal.		32,811,050.00			End. Bal.	450,000.00

Answer C.
Morrow Enterprises
Reatined Earnings Statement
For the Year Ended Dec 31, 2016
Beginning Balance, Jan 1, 2016	32,153,000.00
Net Income	1,223,000.00
Sub-Total	33,376,000.00
Stock Dividends	(531,250.00)
Cash Dividends	(33,700.00)
Ending Balance, Dec 31, 20Y5	32,811,050.00
Answer D.
Morrow Enterprises
Balance Sheet (Partial)
As of Dec 31, 2016
Shareholders' Equity
Paid In Capital
Common Stock - $20 Par Value (500,000 Shares Authorized, 446,250 issued)	8,925,000.00
Paid in Capital in Excess of Stated Value - Common Stock	1,245,650.00
Paid in Capital in Excess of Stated Value - Treasury Stock	201,600.00
Total Paid-in Capital		10,372,250.00
Retained Earnings		32,811,050.00
Sub-Total		43,183,300.00
Treasury Stock (25,000 Shares)		(450,000.00)
Total Shareholders' Equity		42,733,300.00