Question

Kohler Corporation reports the following components of stockholders’ equity on December 31, 2016:

Common stock—$20 par value, 100,000 shares authorized, 40,000 shares issued and outstanding	$	800,000
Paid-in capital in excess of par value, common stock		70,000
Retained earnings		460,000
Total stockholders' equity	$	1,330,000

In year 2017, the following transactions affected its stockholders’ equity accounts.

Jan.		1		Purchased 5,500 shares of its own stock at $20 cash per share.
Jan.		5		Directors declared a $2 per share cash dividend payable on February 28 to the February 5 stockholders of record.
Feb.		28		Paid the dividend declared on January 5.
July		6		Sold 2,063 of its treasury shares at $24 cash per share.
Aug.		22		Sold 3,437 of its treasury shares at $17 cash per share.
Sept.		5		Directors declared a $2 per share cash dividend payable on October 28 to the September 25 stockholders of record.
Oct.		28		Paid the dividend declared on September 5.
Dec.		31		Closed the $388,000 credit balance (from net income) in the Income Summary account to Retained Earnings.

Required:
1. Prepare journal entries to record each of these transactions for 2017.
2. Prepare a statement of retained earnings for the year ended December 31, 2017.
3. Prepare the stockholders' equity section of the company’s balance sheet as of December 31, 2017.

Answer 1

Solution 1:

Kohler Corporation - Journal Entries
Date	Particulars	Debit	Credit
1-Jan	Treasury Stock A/c Dr	$110,000.00
	To Cash		$110,000.00
	(Being 5500 shares of treasury stock purchased at $20 per share)
5-Jan	Retained Earnings Dr	$69,000.00
	To Dividend payable [(40000 - 5500)*2]		$69,000.00
	(Being dividend declared)
28-Feb	Dividend Payable Dr	$69,000.00
	To Cash		$69,000.00
	(Being dividend paid)
6-Jul	Cash A/c Dr (2063*24)	$49,512.00
	To Treasury Stock (2063*20)		$41,260.00
	To Additional Paid in Capital (2063*$4)		$8,252.00
	(Being 2063 shares of treasury stock sold at $24 per share)
22-Aug	Cash A/c Dr (3437*17)	$58,429.00
	Additional Paid in Capital A/c Dr	$8,252.00
	Retained Earnings Dr (Balancing figure)	$2,059.00
	To Treasury Stock (3437*$20)		$68,740.00
	(Being 3437 shares of treasury stock sold at $17 per share)
5-Sep	Retained Earnings Dr	$80,000.00
	To Dividend payable (40000*2)		$80,000.00
	(Being dividend declared)
28-Oct	Dividend Payable Dr	$80,000.00
	To Cash		$80,000.00
	(Being dividend paid)
31-Dec	Net Income Dr	$388,000.00
	To Retained Earnings		$388,000.00
	(Being income transferred to retained earnings)

Solution 2:

Kohler Corporation - Statement of Retained Earnings on 31.12.2017
Particulars	Amount
Opening balance	$460,000.00
Add: Income for 2017	$388,000.00
Less: Dividend Paid	$149,000.00
Less: Loss on sale of treasury stock	$2,059.00
Ending balance of Retained Earnings	$696,941.00

Solution 3:

Stockholder Equity Section of Balance sheet
Kohler Corporation at December 31, 2017
Particulars	Amount
Stockholders Equity:
Common stock—$20 par value, 100,000 shares authorized, 40,000 shares issued and outstanding	$800,000.00
Paid-in capital in excess of par value, common stock	$70,000.00
Retained Earnings	$696,941.00
Total Stockholder's Equity	$1,566,941.00