Question

 

Kohler Corporation reports the following components of stockholders’ equity on December 31, 2016:

Common stock—$20 par value, 100,000 shares authorized, 50,000 shares issued and outstanding	$	1,000,000
Paid-in capital in excess of par value, common stock		80,000
Retained earnings		430,000
Total stockholders' equity	$	1,510,000

In year 2017, the following transactions affected its stockholders’ equity accounts.

Jan.		1		Purchased 4,500 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 1,688 of its treasury shares at $24 cash per share.
Aug.		22		Sold 2,812 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 $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.

a.Record the purchase of 4,500 shares of its own common stock for $20 cash per share.

b.Record the declaration of a cash dividend of $4 per share.

c.ecord the payment of the cash dividend.

d.Record the reissue of 1,688 shares of the treasury stock for $24 cash per share.

e.Record the reissue of 2,812 shares of the treasury stock for $17 cash per share.

f.Record the declaration of a cash dividend of $4 per share.

g.Record the payment of the cash dividend.

h.Record the entry to close the income summary account having a credit balance of $388,000.

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

Requirement 1:

Date	Account title and explanation	Debit	Credit
Jan. 1	Treasury stock [4500 x $20 cost]	$90,000
	Cash		$90,000
	[To record repurchase of own shares]
Jan. 5	Retained earnings	$182,000
	Dividends payable [(50,000-4,500 treasury stock) x $4]		$182,000
	[To record declaration of cash dividends]
Feb.28	Dividends payable	$182,000
	Cash		$182,000
	[To record payment of cash dividends]
July 6	Cash [1688 x $24]	$40,512
	Treasury stock [1688 x $20]		$33,760
	Paid-in capital from treasury stock		$6,752
	[To record sale of treasury stock]
Aug 22	Cash [2812 x $17]	$47,804
	Paid-in capital from treasury stock	$6,752
	Retained earnings	$1,684
	Treasury stock [2812 x $20]		$56,240
	[To record sale of treasury stock]
Sept.5	Retained earnings	$200,000
	Dividends payable [(50,000-4,500 +1688 + 2812) x $4]		$200,000
	[To record declaration of cash dividends]
Oct.28	Dividends payable	$200,000
	Cash		$200,000
	[To record payment of cash dividends]
Dec.31	Income Summary	$388,000
	Retained earnings		$388,000
	[To record net income]

Requirement 2:

Kohler Corporation
Statement of Retained earnings
For the year ended Dec 31,2017
Retained earnings, Jan 1 2017	$430,000
Add: Net income	$388,000
Balance	$818,000
(Less): Cash dividends (182000+200000)	($382,000)
Retained earnings, Dec 31 2017	$436,000

Requirement 3:

Kohler Corporation
Balance Sheet (partial)
At December 31,2017
Stockholders' Equity:
Paid-in capital:
Common stock	$1,000,000
Paid-in capital in excess of par value, common	$80,000
Total paid-in capital	$1,080,000
Retained earnings	$436,000
Total Stockholders' equity	$1,516,000