Question

Alexander Corporation reports the following components of stockholders’ equity on December 31, 2016: Common stock—$25 par value, 70,000 shares authorized, 42,000 shares issued and outstanding $ 1,050,000 Paid-in capital in excess of par value, common stock 84,000 Retained earnings 382,000 Total stockholders’ equity $ 1,516,000 In year 2017, the following transactions affected its stockholders’ equity accounts. Jan. 2 Purchased 4,200 shares of its own stock at $25 cash per share. Jan. 7 Directors declared a $1.50 per share cash dividend payable on February 28 to the February 9 stockholders of record. Feb. 28 Paid the dividend declared on January 7. July 9 Sold 1,680 of its treasury shares at $30 cash per share. Aug. 27 Sold 2,100 of its treasury shares at $20 cash per share. Sept. 9 Directors declared a $2 per share cash dividend payable on October 22 to the September 23 stockholders of record. Oct. 22 Paid the dividend declared on September 9. Dec. 31 Closed the $64,000 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

1)

Date	Account title	Debit	credit
jan 2	Treasury stock	105000
	cash (4200*25)		105000
jan 7	cash dividend	56700
	Dividend payable [(42000-4200)*1.5]		56700
Feb 28	Dividend payable	56700
	cash		56700
July 9	cash [1680*30]	50400
	Treasury stock [1680*25]		42000
	Paid-in capital in excess of COSt -treasury stock		8400
aug 27	cash [ 2100*20]	42000
	Paid-in capital in excess of COSt -treasury stock	8400
	Paid-in capital in excess of par -common stock	2100
	TReasury stock [2100*25]		52500
sep 9	cash dividend	83160
	dividend payable [(42000-4200+1680+2100)*2]		83160
oct 22	dividend payable	83160
	cash		83160
dec 31	Income summary	64000
	Retained earning		64000
	Retained earning	139860
	cash dividend		139860
	[to close cash dividend]

2)

Statement of retained earning for the period ended 31 december 2017
Beginning retained earning	382000
net income	64000
lesscash dividend	(139860)
Retained earning at end	306140

3)

stockholders equity for the period ended 31 december 2017
Common stock   [42000 shares issued at 25 par]	1050000
Paid-in capital in excess of par -common stock [84000-2100]	81900
Retained earning	306140
Total paid in capital and retained earning	1438040
less:treasury stock [420*25]	(10500)
total stockholders equity	1427540

**if treasury stock is sold below cost ,the loss is first adjusted to paid in capital earned from sale of treasury stock and then from paid in capital earned from common stock   and then to from retained earning