Question

Exercise 18-23 Transactions affecting retained earnings [LO18-6, 18-7, 18-8]

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

Paid-in capital:
Preferred stock, 7.5%, 88,000 shares at $1 par	$	88,000
Common stock, 383,800 shares at $1 par		383,800
Paid-in capital—excess of par, preferred		1,505,000
Paid-in capital—excess of par, common		2,555,000
Retained earnings		8,845,000
Treasury stock, at cost; 3,800 common shares		(41,800	)
Total shareholders' equity	$	13,335,000

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 245,000 shares of Leasco International common stock that Consolidated Paper had purchased in January as an investment (book value: $962,000). The investment shares had a fair value of $4 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 3% 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 88,000 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 $780,000.

Answer 1

Debit Credit 293550 CONSOLIDATED PAPER, INC. Shareholders' Equity section] December 31, 2017 Paid-in capital: Date Account title Investment in Leasco international Gain on Revaluation of Leasco Debit Credit Account title Dec 1. Retained earnings Cash dividends payable (489250 0.6) (Note 1) Date March 3. 18000 18000 293550 (245000 4-962000) Preferred stock Common stock (433500+3400) Paid-in capital- excess of par, preferred Paid-in capital- Excess of par, common* 88.000 493,050 March 3 980000 Retained earning Property dividend payable |(245000 4) 1,505,000 Dec 20. No entry 980000 2,602,500 Retained earnings 8,188,100 Dec 28. Cash dividends payable 293550 Ireasury st I shareholders' equity March 15. No entry cash 293550 12,834 March 31. Property dividend payable 980000 *2555000-95000+142500 8845000+780000-980000-156750-6600-293550 Investment in Leasco international 980000 Note 1: stock o/s at beg (383800-3800) 380000 May 3 Paid-in capital- Excess of par, common Common stock (95000*1) 95000 stock dividend (380000 25 % ) Balance stock dividend (475000 3 % ) Balance 95000 May 3. 95000 475000 July 5 14250 489250 (Note 1) July 5 Retained earnings (1425011) Common stock (14250 1) 156750 14250 Paid-in capital- Excess of par, common 142500 (Note 1) Retained earnings Cash 6600 Dec 1 payable 6600 (88000 7.5 %) No entry Dec 20. Cash dividends payable 6600 Dec 28 cash 6600 Sheeti89 Sheet190 Sheet182 Sheet183 Sheet1 84 Sheet1 85 Sheet1 86 Sheet187 Sheet1 88 ENG 14:50 aill 12/06/2019