Question

Morrow Enterprises Inc. manufactures bathroom fixtures. The stockholders’ equity accounts of Morrow Enterprises Inc., with balances on January 1, 20Y5, are as follows:

Common stock, $20 stated value (500,000 shares authorized, 363,000 shares issued)	$7,260,000
Paid-In Capital in Excess of Stated Value—Common Stock	834,900
Retained Earnings	32,541,000
Treasury Stock (25,900 shares, at a cost of $19 per share)	492,100

The following selected transactions occurred during the year:

Jan.	22	Paid cash dividends of $0.09 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $30,339.
Apr.	10	Issued 80,000 shares of common stock for $23 per share.
Jun.	6	Sold all of the treasury stock for $25 per share.
Jul.	5	Declared a 3% stock dividend on common stock, to be capitalized at the market price of the stock, which is $26 per share.
Aug.	15	Issued the certificates for the dividend declared on July 5.
Nov.	23	Purchased 33,000 shares of treasury stock for $19 per share.
Dec.	28	Declared a $0.10-per-share dividend on common stock.
	31	Closed the two dividends accounts to Retained Earnings.

	Required:
A.	Enter the January 1 balances in T accounts for the stockholders’ equity accounts listed.
B.	Journalize the entries to record the transactions, and post to the eight selected accounts. No post ref is required in the journal. Refer to the Chart of Accounts for exact wording of account titles.
C.	Prepare a retained earnings statement for the year ended December 31, 20Y5. Assume that Morrow Enterprises had net income for the year ended December 31, 20Y5, of $1,218,500. For those boxes in which you must enter subtractive or negative numbers use a minus sign. The word “Less” is not required.*
D.	Prepare the Stockholders’ Equity section of the December 31, 20Y5, balance sheet. For those boxes in which you must enter subtractive or negative numbers use a minus sign.* *Refer to the list of Amount Descriptions provided for the exact wording of the answer choices for text entries.

CHART OF ACCOUNTS
Morrow Enterprises Inc.
General Ledger
ASSETS 110 Cash 120 Accounts Receivable 131 Notes Receivable 132 Interest Receivable 141 Merchandise Inventory 145 Office Supplies 151 Prepaid Insurance 181 Land 193 Equipment 194 Accumulated Depreciation-Equipment LIABILITIES 210 Accounts Payable 221 Notes Payable 226 Interest Payable 231 Cash Dividends Payable 236 Stock Dividends Distributable 241 Salaries Payable 261 Mortgage Note Payable EQUITY 311 Common Stock 313 Paid-In Capital in Excess of Stated Value-Common Stock 315 Treasury Stock 321 Preferred Stock 322 Paid-In Capital in Excess of Par-Preferred Stock 331 Paid-In Capital from Sale of Treasury Stock 340 Retained Earnings 351 Cash Dividends 352 Stock Dividends 390 Income Summary	REVENUE 410 Sales 610 Interest Revenue

Amount Descriptions
Cash balance, July 31, 20Y5
Cash dividends
Common stock, $20 stated value (500,000 shares authorized, 363,000 shares issued)
Common stock, $20 stated value (500,000 shares authorized, 423,290 shares issued)
Common stock, $20 stated value (500,000 shares authorized, 456,290 shares issued)
Decrease in retained earnings
Excess over stated value
For the Year Ended December 31, 20Y5
From sale of treasury stock
Increase in retained earnings
Net income
Net loss
Paid-in capital, common stock
Retained earnings
Retained earnings, December 31, 20Y5
Retained earnings, January 1, 20Y5
Stock dividends
Total
Total paid-in capital
Total stockholders’ equity
Treasury stock

Answer 1

Account Title & Explanation Debit 8 Date 922-Jan Cash Dividends Payable (363000-25900)*.09 10 Credit 30,339 Cash 30,339 To record payment of dividend) 12 13 10-Apr Cash (80000 23) 14 15 16 17 1,840,000 Common Stock (80000 20) Paid-In Capital in Excess of Stated Value-Common Stock 1,600,000 240,000 To record issue of common stock) 18 6-Jun Cash (25900 25) 647,500 19 20 21 Treasury Stock (25900*19) Paid-In Capital from Sale of Treasury Stock 492,100 155,400 To record sale of Treasury stock) 23 24 25 26 27 28 29 30 5-Jul Stock Dividends (363000 +80000)*3%*26 345,540 Stock Dividends Distributable (363000+80000)*3%*20 Paid-In Capital in Excess of Stated Value-Common Stock 265,800 79,740 To record issue of stock dvidend) 15-Aug Stock Dividends Distributable 265,800 Common Stock 265,800 To record issue of common stock dvidend)

23-Nov Treasury Stock Cash 32 627,000 627,000 To record purchase of Treasury stock) 34. 35 36 28-Dec Cash Dividends (363000+80000-33000+13290)*0.10 37 38 39 40 31-Dec Income Summary 41 42 43 44 31-Dec Retained Earnings 45 46 47 48 42,329 Cash Dividends Payable To record declaration of dividend) 42,329 1,218,500 Retained Earnings 1,218,500 To record transfer of net income) 387,869 Stock Dividends 345,540 42,329 Cash Dividends ord transfer of dividends)

T Accounts Common Stock Paid-In Capital in Excess of Stated Value-Common Stock 51 52 53 834,900 Jan. 1 Balance 240,000 10-Apr 7,260,000.00 Jan. 1 Balance 360,000 1,600,000 265,800 10-Apr 1-Jul 79,740 1-Jul 9,125,800 794,640 56 57 58 59 Retained Earni Stock 31-Dec 387,869 32,541,000 Jan. 1 Balance Jan. 1 Bala 31-Dec23-Nov 492,100 627,000 492,100 6-Jun 1,218,500 61 62 63 64 65 33,371,631 627,000 Paid-In Capfrom Sale of Treasury Stock Stock Dividends Distributable 155,400 -Jun 15-Aug 2б5, 800 265,800 5-Jul 69 155,400

73 Stock Dividends Cash Dividends Jul 345,540 345,540 1-De 28-Dec 42,329 42,329 31-Dec 75 78 79 C. Prepare a retained earnings statement for the year ended December 31,20Y5. Assume that Morrow Enterprises had net income for the year ended December 31 81 82 MORROW ENTERPRISES INC. Retained Earnings Statement 84 For the year ending December 31. 20Y5 Retained Earnings(January 1,20Y5) Net Income Less Cash Dividends 85 32,541,000 1,218,500 (42,329) (345,540) 87 Stock Dividends 89 90 91 Increase in Retained Earnings Retained Earnings(December 31, 20Y5) 830,631 33,371,631

MORROW ENTERPRISES INC. 93 Balance Sheet 94 December 31,20YS Stockholder's Equity 96 97 98 Paid in Capital; Common Stock, $20 stated value (500,000 shares authorized, 456290 shares issued) Excess of Issue price over Stated Value From Sale of Treasury Stock Total Paid in Capital Retained Earnings Total Deduct Treasury Stock at Cost (33000 shares) Total Stockholder's Equity 9,125,800 794,640 155,400 100 101 102 103 104 105 106 107 108 109 10,075,840 33,371,631 43,447,471 627,000 42,820,471