Question

The balance sheet of Consolidated Paper, Inc., included the following shareholders' equity accounts at December 31, 2020: Paid-in capital: Preferred stock, 8.8%, 90,000 shares at $1 par Common stock, 364,000 shares at $1 par Paid-in capital-excess of par, preferred Paid-in capital-excess of par, common Retained earnings Treasury stock, at cost: 4,000 common shares Total shareholders' equity 90,000 364,000 1,437,000 2,574.000 9,735,000 (44,000) $14,156,000 During 2021, several events and transactions affected the retained earnings of Consolidated Paper. Required: 1. Prepare the appropriate entries for these events: a. On March 3, the board of directors declared a property dividend of 240,000 shares of Leasco International common stock that Consolidated Paper had purchased in January as an investment (book value: $700,000). The investment shares had a fair value of $3 per share and were distributed March 31 to shareholders of record March 15. b. On May 3, a 5-for-4 stock split was deciared and aistributed. To stock split was effected in the form of a 25% stock dividend. The market value of the S1 par common stock was $11 per share. c. On July 5, a 2% common stock dividend was declared and distributed. The market value of the common stock was $11 per share. d. On December 1, the board of directors declared the 8.8% cash dividend on the 90,000 preferred shares, payable on December 28 to shareholders of record December 20. e. On December 1, the board of directors deciared a cash dividend of $0.50 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, 2021. Net income for the year was $810,000.

Answer 1

Date General Journal Debit Credit March 3 $ 20,000 Investment in Leasco International Gain on appreciaiton of Investment (to record gain on appreciaion on investment) $ 20,000 March 3 $ 720,000 Retained earnings Property dividend payable (to record property dividend payable) $ 720,000 March 15 No Entry Required (no entry required for date of record) March 31 $ 720,000 Property dividend payable Investment in Leasco International (to record payment of property dividend) $ 720,000 May 3 $ 90,000 Paid in capital - excess of par, common Common stock (to record stock dividend) $ 90,000 July 5 $ 99,000 Retained earnings (9,000 * $ 11) Common stock (9,000 Ⓡ$ 1) Paid in capital - excess of par, common (to record stock dividend) $ $ 9,000 90,000 Dec 1 S 7,920 Retained earnings ( 90,000 shares x 8.8% * $ 1) Cash dividend payable (to record cash dividend declared for preferred stock) $ 7,920

Dec 20 No Entry Required (no entry required for date of record) Dec 28 $ 7,920 Cash dividend payable Cash (to record payment of dividend) $ 7,920 Dec 1 $ 229,500 Retained earnings Cash dividend payable (to record cash dividend declared for common stock) $ 229,500 Dec 20 No Entry Required (no entry required for date of record) Dec 28 $ 229,500 Cash dividend payable Cash (to record payment of dividend) $ 229,500

Working Notes 1) Gain on Appreciation of Investment Shares of Leasco International Fair value of share Fair value Leasco International (240,000 $ 3) Less: Book value of Investment Gain on appreciaiton of Investment 240,000 $ $ 3 $ 720,000 (700,000) $ 20,000 2) Stock dividend stock dividend is 25% hence it is large stock dividend. Hence it should be recorded at par value Number of Shares outstanding Number of shares issued 364,000 Less: Treasury stock (4,000) Number of shares outstanding 360,000 Stock dividend (360,000 x 25% * $ 1 per share) $ 90,000 Note: Instead of Paid in capital in excess of par-common, retained earnings can also be used. 3) Stock dividend @ 2% Number of shares outstanding Add: large stock dividend Total Shares outstanding Stock dividend shares (450,000 ~ 2%) Total Shares outstanding (450,000 + 9,000) 360,000 90,000 450,000 9,000 459,000 14) Total Common stock outstanding after stock dividend 2% Cash dividend per share Total Cash dividend payable (459,000 ~ 0.50) 459,000 $ 0.50 $ 229,500

Consolidated Paper Inc. Stockholders' Equity Section December 31, 2021 Paid In capital: Preferred stock, 8.8%, 90,000 shares at $ 1 par $ Common stock, 463,000 shares at $1 par Paid in capital- excess of par, Preferred Paid in capital- excess of par, Common Retained earnings Treasury stock, at cost, 4,000 common shares Total Shareholders' equity $ Working Notes: Number of common stock issued On Jan 1, 2021 Add: Stock dividend on May 3 Add: Stock dividend on July 5 Total Common stock issued 90,000 463,000 1,437,000 2,574,000 9,488,580 (44,000) 14,008,580 364,000 90,000 9,000 463,000 Paid in capital in excess of par, common Balance as on Jan 1, 2021 Less: Stock dividend on May 3 Add: Stock dividend on July 5 Balance as on Dec 31, 2021 2,574,000 (90,000) 90,000 2,574,000 Retained Earnings Balance as on Jan 1, 2021 Add: Net Income Less: March 3 Property dividend payable Less: July 5 stock dividend Less: Dec 1 Cash Dividend preferred dividend Less: Dec 1 Cash Dividend cash dividend Balance as on Dec 31, 2021 9,735,000 810,000 (720,000) (99,000) (7,920) (229,500) 9,488,580