Question

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

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

Required:
1. Prepare the appropriate entries for these events.

1. 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.
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 $12 per share.
3. On July 5, a 2% common stock dividend was declared and distributed. The market value of the common stock was $12 per share.
4. 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.
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 $830,000.

Answer 1

Requirement 1)

Date	General Journal	Debit ($)	Credit ($)
(a)
March 03	Investment in Leasco International stock	23000
	Gain on appreciation of investment		23000
	( To record gain on appreciation on investment)
March 03	Retained earnings (265000 shares at $3 per share).	795000
	Property dividends payable		795000
	( To record property dividend payable)
March 15	no entry
March 31	Property dividends payable	795000
	Investment in Leasco International stock		795000
	( To record payment of property dividend)
(b)
May 03	Paid-in capital—excess of par, common	107500
	Common stock		107500
	( To record stock dividend)
(c)
July 05	Retained earnings ( 10750 shares x $ 12)	129000
	Common stock ( 10750 shares x $ 1)		10750
	Paid-in capital—excess of par, common ( balancing figure)		118250
	( To recod stock dividend)
(d)
Dec 01	Retained earnings ( 93000 shares x 8% x $1)	7440
	Cash dividends payable		7440
	( To record cash dividend declared for preferred stock)
Dec 20	no entry
Dec 28	Cash dividends payable	7440
	Cash		7440
	( To record payment of dividend)
(e)
Dec 01	Retained earnings	274125
	Cash dividends payable		274125
	( To record cash dividend declared for Common stock)
Dec 20	no entry
Dec 28	Cash dividends payable	274125
	Cash		274125
	( To record payment of dividend)

Working Notes:

1) Gain on Appreciation of Investment

Particulars	Amount
Share of Leasco International	265000
Fair Value of Share	$ 3
Fair Value Leasco International ( 265000 shares x $3)	$ 795000
Less: Book Value of Investment	($ 772000)
Gain on Appreciation of Investment	$ 23000

2) Stock Dividend

Stock dividend is 25% hence it is large stock dividend. Hence it should be recorded at par value

Particulars	Amount
Number of shares Outstanding
Number of shares issued	434300 shares
Less: Treasury stock	4300 shares
Number of shares Outstanding	430000 shares
Stock Dividend ( 430000 shares x 25% x $ 1 per share)	107500

3) Stock dividend @ 2%

Particulars	Amount
Number of shares Outstanding	430000
Add: Large stock dividend	107500
Total Shares outstanding	537500
Stock dividend shares ( 537500 x 2%)	10750
Total Shares outstanding ( 537500 + 10750 )	548250 shares

Total Common Stock outstanding after stock dividend 2%	548250
Cash dividend per share	$ 0.50
Total Cash Dividend Payable ( 548250 shares x $ 0.50 )	$ 274125

Requirement 2)

Consolidated Papaer Inc
Stockholder's Equity Section
December 31, 2021
Paid in Capital	($)
Preferred Stock , 8.0% 93000 shares at $ 1 par	93000
Common Stock 552550 shares at $ 1 par	552550
Paid in Capital - excess of par, Preferred	1545000
Paid in Capital - excess of par, Common	2584250
Retained earnings	8869435
Treasury stock , at cost, 4300 common shares	(51600)
Total Shareholder's equity	$ 13592635

Working Note:

1) Number of Common shares issued

On Jan 1 2021	434300
Add: Stock dividend on May 03	107500
Add: Stock dividend on July 5	10750
Total Common stock isued	552550 shares

2) Paid in Capital in excess of Par

Balance as on Jan 1 2021	2595000
Add: Stock dividend on May 03	107500
Less: Stock dividend on July 5	118250
Balance as on Dec 31 2021	$ 2584250

3) Retained Earnings

Balance as on Jan 1 2021	$ 9245000
Add: Net Income	$ 830000
Less: March 3 Property dividend payable	$ 795000
Less: July 5 stock dividend	$ 129000
Less: Dec 1 Cash dividend preferred dividend	$ 7440
Less: Dec 1 Cash dividend Cash dividend	$ 274125
Balance as on Dec 31 2021	$ 8869435

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