Question

Kohler Corporation reports the following components of stockholders’ equity on December 31, 2017.

Common stock—$15 par value, 100,000 shares authorized, 50,000 shares issued and outstanding	$	750,000
Paid-in capital in excess of par value, common stock		70,000
Retained earnings		400,000
Total stockholders' equity	$	1,220,000

In year 2018, the following transactions affected its stockholders’ equity accounts.

Jan.		1		Purchased 6,000 shares of its own stock at $20 cash per share.
Jan.		5		Directors declared a $4 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 2,250 of its treasury shares at $24 cash per share.
Aug.		22		Sold 3,750 of its treasury shares at $17 cash per share.
Sept.		5		Directors declared a $4 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 $408,000 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 2018.
2. Prepare a statement of retained earnings for the year ended December 31, 2018. (Amounts to be deducted should be indicated by a minus sign.)
3. Prepare the stockholders' equity section of the company’s balance sheet as of December 31, 2018.

Answer 1

1.

Date	Account Titles	Debit	Credit
Jan-01	Treasury Stock	$       1,20,000
	Cash		$       1,20,000
Jan-05	Retained Earnings / Cash Dividend	$       1,76,000
	Dividend Payable		$       1,76,000
Feb-28	Dividend Payable	$       1,76,000
	Cash		$       1,76,000
Jul-06	Cash	$          54,000
	Treasury Stock		$          45,000
	Paid in Capital from Treasury Stock		$             9,000
Aug-22	Cash	$          63,750
	Paid in Capital from Treasury Stock	$            9,000
	Retained Earnings	$            2,250
	Treasury Stock		$          75,000
Sep-05	Retained Earnings / Cash Dividend	$       2,00,000
	Dividend Payable		$       2,00,000
Oct-28	Dividend Payable	$       2,00,000
	Cash		$       2,00,000
Dec-31	Income Summary	$       4,08,000
	Retained Earnings		$       4,08,000
Dec-31	Retained Earnings	$       3,76,000
	Cash Dividend		$       3,76,000
	(Only if cash dividend account used earlier)

2.

Statement of Retained Earnings
Beginning Balance		$       4,00,000
Add Net Income		$       4,08,000
		$       8,08,000
Less
Cash Dividend	$       3,76,000
Treasury Stock	$            2,250	$       3,78,250
Ending Balance		$       4,29,750

3.

Stockholders Equity
Common Stock	$       7,50,000
Paid in Capital in excess of par-common	$          70,000
Total Paid in Capital	$       8,20,000
Retained Earnings	$       4,29,750
Total Stockholders Equity	$    12,49,750