Question

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

Common stock—$25 par value, 100,000 shares authorized, 40,000 shares issued and outstanding	$	1,000,000
Paid-in capital in excess of par value, common stock		80,000
Retained earnings		460,000
Total stockholders' equity	$	1,540,000

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

Jan.		1		Purchased 5,000 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 1,875 of its treasury shares at $24 cash per share.
Aug.		22		Sold 3,125 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 Earnings.

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.

Answer 1

1
Date	General Journal	Debit	Credit
1-Jan	Treasury stock, Common	100,000		=5000*20
	Cash		100,000
5-Jan	Retained earnings	70,000		=(40000-5000)*2
	Common dividend payable		70,000
28-Feb	Common dividend payable	70,000
	Cash		70,000
6-Jul	Cash	45,000		=1875*24
	Treasury stock, Common		37,500	=1875*20
	Paid-in capital, Treasury stock		7,500
22-Aug	Cash	53,125		=3125*17
	Paid-in capital, Treasury stock	7,500
	Retained earnings	1,875
	Treasury stock, Common		62,500	=3125*20
5-Sep	Retained earnings	80,000		=40000*2
	Common dividend payable		80,000
28-Oct	Common dividend payable	80,000
	Cash		80,000
31-Dec	Income summary	388,000
	Retained earnings		388,000
2
	KOHLER CORPORATION
	Statement of Retained Earnings
	For Year Ended December 31, 2017
	Retained earnings, Dec. 31, 2016	460,000
	Add: Net income	388,000
		848,000
	Less: Cash dividends declared	-150,000
	Less: Treasury stock reissuances	-1,875
	Retained earnings, Dec. 31, 2017	696,125
3
	KOHLER CORPORATION
	Stockholders' Equity Section of the Balance Sheet
	December 31, 2017
	Common stock - $25 par value	1,000,000
	Paid-in capital in excess of par value, common stock	80,000
	Total contributed capital	1,080,000
	Retained earnings	696,125
	Total stockholders' equity	1,776,125