Question

Morrow Enterprises Inc. manufactures bathroom fixtures. Morrow Enterprises’ stockholders’ equity accounts, with balances on January 1, 20Y6, 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 cost) 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 credit balance of the income summary account, $1,218,500. 31 Closed the two dividends accounts to Retained Earnings. Required: 1. Enter the January 1 balances in T accounts for the stockholders’ equity accounts listed. 2. 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. When required, round your answers to the nearest dollar. 3. Prepare a retained earnings statement for the year ended December 31, 20Y6. For those boxes in which you must enter subtracted or negative numbers use a minus sign. 4. Prepare the Stockholders’ Equity section of the December 31, 20Y6, balance sheet. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Answer 1

1 & 2.	Journal Entries
	Date	Account titles and explanation				Debit	Credit
	Jan 22.	Cash dividend payable				30339
		Cash					30339
		(Paid cash dividends)
	Apr 10.	Cash		(80000*23)		1840000
		Common stock		(80000*20)			1600000
		Paid-In Capital in Excess of Stated Value—Common Stock					240000
	June 6.	Cash		(25900*25)		647500
		Treasury Stock					492100
		Paid-In Capital from treasury stock					155400
		(Sold all of the treasury stock)
	Jul 5.	Stock dividend			(363000+80000)*3%*26	345540
		Stock dividend distributable			(363000+80000)*3%*20		265800
		Paid-In Capital in Excess of Stated Value—Common Stock					79740
	Aug 15.	Stock dividend distributable				265800
		Common stock					265800
		(Issued the certificates for the dividend declared)
	Nov 23.	Treasury Stock			(33000*19)	627000
		Cash					627000
		(Purchased 33,000 shares of treasury stock)
	Dec 28.	Cash dividend			(363000+80000)*0.10	44300
		Cash dividend payable					44300
		(Declared a $0.10-per-share dividend on common stock)
	Dec 31.	Income summary				1218500
		Retained earnings					1218500
		(Closed the credit balance of the income summary account)
	Dec 31.	Retained earnings				389840
		Stock dividend					345540
		Cash dividend					44300
		(Closed the two dividends accounts to Retained Earnings)
	T-accounts
		Common stock
	Date	Debit	Credit	Balance
	Jan 1.			7260000
	Apr 10.		1600000	8860000
	Aug 15.		265800	9125800
	Paid-In Capital in Excess of Stated Value—Common Stock
	Date	Debit	Credit	Balance
	Jan 1.			834900
	Apr 10.		240000	1074900
	Jul 5.		79740	1154640
		Treasury Stock
	Date	Debit	Credit	Balance
	Jan 1.			492100
	June 6.		492100	0
	Nov 23.	627000		627000
	Paid-In Capital from treasury stock
	Date	Debit	Credit	Balance
	June 6.		155400	155400
		Stock dividend
	Date	Debit	Credit	Balance
	Jul 5.	345540		345540
	Dec 31.		345540	0
		Cash dividend
	Date	Debit	Credit	Balance
	Dec 28.	44300		44300
	Dec 31.		44300	0
		Income summary
	Date	Debit	Credit	Balance
				1218500
	Dec 31.	1218500		0
		Retained earnings
	Date	Debit	Credit	Balance
	Jan 1.			32541000
	Dec 31.		1218500	33759500
	Dec 31.	345540		33413960
	Dec 31.	44300		33369660