Question

In: Accounting

Kohler Corporation reports the following components of stockholders’ equity on December 31, 2016: Common stock—$20 par...

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.

Solutions

Expert Solution

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

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