Question

Kohler Corporation reports the following components of stockholders' equity on December 31, 2016: o utstand 10. Common stock-$10 par value, 100,000 shares authorized, 40,000 shares issued and outstanding Paid-in capital in excess of par value, common stock Retained earnings Total stockholders' equity $ 400.000 60.000 270.000 $ 730,000 In year 2017, the following transactions affected its stockholders' equity accounts Jan. 1 Purchased 4,000 shares of its own stock at $20 cash per share. Jan. 5 Directors declared a $2 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 1,500 of its treasury shares at $24 cash per share. Aug. 22 Sold 2.500 of its treasury shares at $17 cash per share. Sept. 5 Directors declared a $2 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 Warnings. 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 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Prepare journal entries to record each of these transactions for 2017 View transaction list

Answer 1

1.

January 1st 2017,

Treasury stock account ( 4000 shares of $ 10 each) Dr. $ 80000 (20*4000)

To Bank account Cr. $ 80000   

(Being purchased 4000 shares of it's own common stock at $ 20). It assumed that cost method is used to record treasury stock purchase transaction.

January 5th 2017,

Retained earnings account Dr. $ 72000 (36000*2)

To Dividend Payable Cr. $ 72000

( Being dividend declared on shares to the February 5th stock holders of record ). stock holders of record on February 5th

= 40000-4000( repurchase done on January 1st)= 36000 shares

February 28th 2017,

Dividend payable account Dr. $ 72000

To Bank $ 72000

( being dividend paid which is declared on January 5th)

July 6th 2017,

Bank Account Dr. $ 36000 ( 1500*24)

To Treasury stock account $ 30000 (1500*20)

To Paid in capital from treasury stock $ 6000 ( 1500*4)

( Being treasury shares sold)

If treasury stock sold for more than it's purchase price the cash account should be debited for it's selling price , treasury stock account should be credited for it's purchase price and the paid in capital from treasury shares account should be credited for the remaining balance , that is the difference between selling price and purchase price.  

August 22nd , 2017

Bank account Dr. $ 42500 (2500*17)

Paid in capital from treasury shares Dr. $ 7500 (2500*3)

To Treasury stock account $ 50000 ( 2500*20)

If treasury stock is sold for less than purchase price then cash account should be debited for the selling price , treasury stock should be credited for the purchase price and paid in capital account should be debited for the remaining balance.

September 5th, 2017

Retained earnings account Dr. $ 80000 (40000*2)

To dividend payable $ 80000

( Dividend declared for the share holders of record on September 25th)

October 28th, 2017

Dividend payable account Dr. $ 80000

To Bank $ 80000

( Dividend paid which declared on September 5th)

December 31st, 2017

Income summary Account Dr. $ 388000

To Retained earnings account $ 388000

( Being balance in income summary account transferred to retained earnings)

2. Statement of retained earnings for the year ended December 31st , 2017

Particulars Amount

Beginning balance as on December 31st, 2016 $ 270000

less: Dividend declared on January 5th @ 2 per share to 36000 shares outstanding (Dr.) ($ 72000)

less: Dividend declared on September 5th @ 2 per share to 40000 shares outstanding ( Dr.)   ($ 80000)

Add: Transferred balance from income summary account (Cr.)   $ 388000

Ending balance as on December on December 31st , 2017 $ 506000

3. Components of stockholders equity on December 31st, 2017

Common stock- 10 per par value , 100000 shares authorized, 40000 shares issued

and outstanding $ 400000

Paid capital in excess of par value, common stock $ 58500

Retained earnings $ 506000

Total stockholders equity $ 964500

Note:

Statement of additional paid in capital for the year ended December 31,2017

Particulars	Amount ($)
Balance as on January 1, 2017 Add: Reissue of treasury stock at a price more than the purchase price Less: Reissue of treasury stock at a price less than the purchase price Balance as on December 31, 2017	60,000            6,000            (7,500)           58,500