Question

Identifying and Analyzing Financial Statement Effects of Dividends
The stockholders’ equity of Palepu Company at December 31, 2015, appears below.

Common stock, $10 par value, 200,000 shares authorized;
85,000 shares issued and outstanding	$800,000
Paid-in capital in excess of par value	480,000
Retained earnings	315,000

During 2016, the following transactions occurred:

May 12	Declared and issued a 8% stock dividend; the common stock market value was $18 per share.
Dec. 31	Declared and paid a cash dividend of 75 cents per share.

a. Using the financial statement effects template, illustrate the effects of these transactions.
Use negative signs with answers when appropriate. When applicable, enter total amount for contributed capital.

	Balance Sheet									Income Statement
Transaction	Cash Asset	+	Noncash Asset	=	Liabilities	+	Contrib. Capital	+	Earned Capital	Revenues	-	Expenses	=	Net Income
5/12 Declared and paid stock dividend	Answer	+	Answer	=	Answer	+	Answer	+	Answer	Answer	-	Answer	=	Answer
12/31 Declared and issued cash dividend	Answer	+	Answer	=	Answer	+	Answer	+	Answer	Answer	-	Answer	=	Answer

b. Prepare the journal entries for these transactions.

General Journal
Date	Description	Debit	Credit
5/12	AnswerCashCommon stockAdditional paid-in capitalRetained earnings	Answer	Answer
	Common Stock	Answer	Answer
	AnswerCashCommon stockAdditional paid-in capitalRetained earnings	Answer	Answer
12/31	AnswerCashCommon stockAdditional paid-in capitalRetained earnings	Answer	Answer
	AnswerCashCommon stockAdditional paid-in capitalRetained earnings	Answer	Answer

c. Post the journal entries from b to the related T-accounts.

Cash (A)
5/12	Answer	Answer
12/31	Answer	Answer

Common Stock (SE)
5/12	Answer	Answer
12/31	Answer	Answer

Retained Earnings (SE)
5/12	Answer	Answer
12/31	Answer	Answer

Additional Paid-in Capital (SE)
5/12	Answer	Answer
12/31	Answer	Answer

d. Prepare a retained earnings reconciliation for 2016 assuming that the company reports 2016 net income of $283,000.
Do not use negative signs with answers below.

PALEPU COMPANY Statement of Retained Earnings For the Year Ended December 31, 2016
Retained earnings, December 31, 2015		Answer
Add:
AnswerNet incomeCash dividends declaredStock dividends declared		Answer
		Answer
Less:
Cash dividends declared	Answer
AnswerNet incomeCash dividends declaredStock dividends declared	Answer	Answer
Retained earnings, December 31, 2016		Answer

Answer 1

Balance Sheet

Income Statement

Transaction

Cash Asset

+

Noncash

=

Liabilities

+

Contrib.

+

Earned

Revenues

-

Expenses

=

Net Income

Asset

Capital

Capital

5/12 Declared and paid stock dividend (85000*8%*18)

+

=

+

$122,400.00

+

-$122,400.00

-

=

12/31 Declared and issued cash dividend (85000+85000*8%)*0.75

-$68,850.00

+

=

+

+

-$68,850.00

-

=

Journal Entry- Palepu Company
Date	Account Title	Debit	Credit
12-May	Retained Earning	$122,400.00
	Common Stock (85000*8%*10)		$68,000.00
	Additional Paid in Capital (bf)		$54,400.00
Dec. 31	Retained Earning	$68,850.00
	Cash		$68,850.00

Cash
12-May	0	0
31-Dec	Credit	68,850
Common Stock
12-May	Credit	68,000
31-Dec	0	0
Retained Earning
12-May	Debit	122,400
31-Dec	Debit	68,850
Additional Paid In Capital
12-May	Credit	54,400
31-Dec	-	-

Statement of Retained Eanring
Beg Balance		$315,000.00
Stock Dividend	$122,400.00
Cash Dividend	$68,850.00
Less: Total Dividend declared & issued		$191,250.00
Net Income earned during year		$283,000.00
Ending Balance		$406,750.00