Question

The balance sheet of Consolidated Paper, Inc., included the following shareholders’ equity accounts at December 31, 2017:

Paid-in capital:
Preferred stock, 7.5%, 92,000 shares at $1 par	$	92,000
Common stock, 424,200 shares at $1 par		424,200
Paid-in capital—excess of par, preferred		1,535,000
Paid-in capital—excess of par, common		2,585,000
Retained earnings		9,145,000
Treasury stock, at cost; 4,200 common shares		(46,200)
Total shareholders' equity	$	13,735,000

During 2018, 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 260,000 shares of Leasco International common stock that Consolidated Paper had purchased in January as an investment (book value: $498,000). The investment shares had a fair value of $2 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 $11 per share.
3. On July 5 a 1% common stock dividend was declared and distributed. The market value of the common stock was $11 per share.
4. On December 1 the board of directors declared the 7.5% cash dividend on the 92,000 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 $0.60 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 $820,000.

Answer 1

ANSWER

1. Journal entries

1. On the date of declaration of proerty dividend
a. To record the fair value of the inventment
Date	Account Title	Debit	Credit
Mar.3, 2018	Investment	22000
	Gain on revaluation of bonds		22000
b. To record the declaration of property dividend
Date	Account Title	Debit	Credit
Mar.3, 2018	Retained Earnings	520000
	Property dividend distributable		520000
2. To record the distribution of property dividend
Date	Account Title	Debit	Credit
Mar.31, 2018	Property dividend distributable	520000
	Investment		520000
3. Delcaration of stock dividend of 25%
Date	Account Title	Debit	Credit
May.3, 2018	Retained Earnings	1155000
	Stock dividend distributable *		1155000
4. Distribution of 25% stock dividend
Date	Account Title	Debit	Credit
May.3, 2018	Stock dividend distributable	1155000
	Common Stock		105000
	Paid-in-capital in excess of par, common stock		1050000
	Common shares outstanding (424,200 - 4,200)	420000
	Stock dividend	25%
	Number of stock dividend shares	105000
	Market value of share	11
	Stock dividend value *	1155000
5. To record declaration of 1% common stock dividend
Date	Account Title	Debit	Credit
July.5, 2018	Retained Earnings	57750
	Stock dividend distributable **		57750
	Common shares outstanding	525000
	Stock dividend	1%
	Number of common stock shares	5250
	Market value of share	11
	Stock dividend value *	57750
6. distrubition of 1% stock dividend
Date	Account Title	Debit	Credit
May.3, 2018	Stock dividend distributable	57750
	Common Stock		5250
	Paid-in-capital in excess of par, common stock		52500
7. Declaration of 7.5% of preferred dividend on 92,000 preferred shares
Date	Account Title	Debit	Credit
July.5, 2018	Retained Earnings	6900
	PreferredDividend Distributable		6900
8. Declaration of cash dividend of $0.60 per share on common stock shares.
Date	Account Title	Debit	Credit
July.5, 2018	Retained Earnings	318150
	Common stock Dividend Distributable		318150
9. Payment of preferred and common stock cash dividend
Date	Account Title	Debit	Credit
July.5, 2018	Prefered Dividend Distributable	6900
	Common stock Dividend Distributable	318150
	Cash		325050

2).

CONSOLIDATED PAPER INC.
Shareholders' equity as at December 31, 2018
Paid-in Capital:
Prefered stock, 7.5%, 92,000 shares at $1 par	92000
Common Stock, 534,450 shares at $1 par	534450
Paid-in-capital in excess of par - Preferred	1535000
Paid-in-capital in excess of par - Common	3687500
Retained earnings *	7907200
Treasury Stock , 4,200 shares	-46200
Total Shareholders' equity	13709950
Retained earnings
Beginning balance		9145000
Add: Net income		820000
		9965000
Less: Dividends paid
Property Dividend	520000
Stock split dividend - Common stock	1155000
Stock Dividend - common stock	57750
Cash dividend - Prefered Stock	6900
Cash dividend - Common Stock	318150	2057800
Ending Balance *		7907200

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