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, $10 stated value (350,000 shares authorized, 240,000 shares issued)	$2,400,000
Paid-In Capital in Excess of Stated Value-Common Stock	450,000
Retained Earnings	5,450,000
Treasury Stock (24,000 shares, at cost)	360,000

The following selected transactions occurred during the year:

Jan. 22.	Paid cash dividends of $0.15 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $32,400.
Apr. 10.	Issued 45,000 shares of common stock for $720,000.
June 6.	Sold all of the treasury stock for $432,000.
July 5.	Declared a 5% stock dividend on common stock, to be capitalized at the market price of the stock, which is $18 per share.
Aug. 15.	Issued the certificates for the dividend declared on July 5.
Nov. 23.	Purchased 15,000 shares of treasury stock for $300,000.
Dec. 28.	Declared a $0.18-per-share dividend on common stock.
31.	Closed the credit balance of the income summary account, $5,668,000.
31.	Closed the two dividends accounts to Retained Earnings.

Required:

1. The January 1 balances have been entered in T accounts for the stockholders' equity accounts. Record the above transactions in the T accounts and provide the December 31 balance where appropriate.

Common Stock
		Jan. 1 Bal.	2,400,000
		Dec. 31 Bal.

Paid-In Capital in Excess of Stated Value-Common Stock
		Jan. 1 Bal.	450,000
		Dec. 31 Bal.

Retained Earnings
		Jan. 1 Bal.	5,450,000
		Dec. 31 Bal.

Treasury Stock
Jan. 1 Bal.	360,000
Dec. 31 Bal.

Paid-In Capital from Sale of Treasury Stock

Stock Dividends Distributable

Stock Dividends

Cash Dividends

2. Journalize the entries to record the transactions. For a compound transaction, if an amount box does not require an entry, leave it blank.

Jan. 22. Paid cash dividends of $0.15 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $32,400.

Date	Account	Debit	Credit
Jan. 22

Apr. 10. Issued 45,000 shares of common stock for $720,000.

Date	Account	Debit	Credit
Apr. 10

June 6. Sold all of the treasury stock for $432,000.

Date	Account	Debit	Credit
June 6

July 5. Declared a 5% stock dividend on common stock, to be capitalized at the market price of the stock, which is $18 per share.

Date	Account	Debit	Credit
July 5

Aug. 15. Issued the certificates for the dividend declared on July 5.

Date	Account	Debit	Credit
Aug. 15

Nov. 23. Purchased 15,000 shares of treasury stock for $300,000.

Date	Account	Debit	Credit
Nov. 23

Dec. 28. Declared a $0.18-per-share dividend on common stock.

Date	Account	Debit	Credit
Dec. 28

Dec. 31. Closed the credit balance of the income summary account, $5,668,000.

Date	Account	Debit	Credit
Dec. 31

Dec. 31. Closed the two dividends accounts to Retained Earnings.

Date	Account	Debit	Credit
Dec. 31

3. Prepare a retained earnings statement for the year ended December 31, 20Y5. Assume that Morrow Enterprises Inc. had net income for the year ended December 31, 20Y5, of $5,668,000.

Morrow Enterprises Inc. Retained Earnings Statement For the Year Ended December 31, 20Y5
Dividends:
		$

4. Prepare the Stockholders' Equity section of the December 31, 20Y5, balance sheet.

Morrow Enterprises Inc. Stockholders' Equity As of December 31, 20Y5
Paid-In-Capital:
Total Paid-In Capital
Total
Total Stockholders' Equity			$

Answer 1

1) T-Accounts
Common Stock
		Jan 1 Bal.	2,400,000
		Apr.10	450,000
		Aug.15	142,500
		Dec . 31 Bal	2,992,500
Paid in Capital in Excess of Stated Value- Common Stock
		Jan 1 Bal	450,000
		Apr.10	270,000
		Jul.5	114,000
		Dec . 31 Bal	834,000
Retained Earnings
Dec. 31	307,665	Jan 1 Bal	5,450,000
		Dec. 31	5,668,000
		Dec. 31 Bal	10,810,335
Treasury Stock
Jan 1 Bal	360,000	Jun .6	360,000
Nov. 23	300,000
Dec. 31 Bal	300,000
Paid in capital from sale of Treasury stock
		Jun .6	72,000
Stock dividends Distributable
Aug.15	142,500	Jul.5	142,500
Stock Dividends
Jul. 5	256,500	Dec. 31	256,500
Cash Dividends
Dec.28	51,165	Dec. 31	51,165

2) Journal Entries Date General Journal Debit Credit 30,240 Jan. 22 Cash Dividends payable Cash (to record cash dividend paid) 30,240 720,000 Apr. 10 Cash Common stock (45,000 x 10) Paid in Capital in Excess of Stated Value- Common Stock (720,000 - 450,000) (to record issue of common stock) 450,000 270,000 432,000 Jun. 6 Cash Treasury stock Paid-In Capital from Sale of Treasury Stock (432,000 - 360,000) (to record sale of treasury stock) 360,000 72,000 256,500 Jul. 5 Stock dividend Stock Dividends Distributable Paid in Capital in Excess of Stated Value- Common Stock (to record stock dividend declared) 142,500 114,000 142,500 Aug. 15 Stock dividend distributable Common stock (to record stock dividend issued) 142,500 300,000 Nov. 23 Treasury stock Cash |(to record treasury stock purchased) 300,000

51,165 Dec. 28 Cash Dividends Cash Dividend payable (to record cash dividend decalred) 51,165 5,668,000 Dec. 31 Income summary Retained Earnings (to close income summary account) 5,668,000 307,665 Dec. 31 Retained Earnings Stock dividends Cash Dividends (to close dividend account) 256,500 51,165 Working Notes 1) Calculation of Dividend payable on Jan.22 Total share outstanding as on 01/01/2016 Less: Treasury stock as on 01/01/2046 Total Share outstanding Cash Dividend per share Cash Dividend (216,000 ~ 0.14) 240,000 (24,000) 216,000 0.14 30,240 $ $ 2) Calculation of Stock dividend issued on Jul 05. Total share outstanding as on 01/01/2016 Add: Stock issued on Apr.10 Total Share outstanding as on 07/01/2016 Stock Dividend Stock dividend shares issued (285,000 x 5%) Market price share Stock dividend issued (14,250 x 18) Common stock (14,250 x 10) Paid in Capital in Excess of Stated Value- Common Stock (256,500 - 142,500) Notes: Treasury stock was not considered because it was sold on Jun 6. 240,000 45,000 285,000 5% 14,250 18 256,500 142,500 114,000 $ $ $

3) Calculation of Cash Dividends on Dec 28. Total share outstanding as on 01/01/2016 Add: Stock issued on Apr.10 Add: Stock dividend as on Aug 15 Total Common stock issued Less: Treasury stock purchased on Nov.23 Total share outstanding as on 12/28/2016 Cash Dividend par share Cash dividend value (284,250 x 0.12) 240,000 45,000 14,250 299,250 (15,000) 284,250 0.18 51,165 $ $ 3) Retained Earnings Statement MORROW ENTERPRISES INC. Statement of Retained Earnings For the Year Ended December 31, 20Y6 5,450,000 Retained Earnings, January 1, 2016 Net Income Less: Cash Dividends Stock Dividends Increase in Retained Earnings Retained Earnings, December 31, 2016 5,668,000 (51,165) (256,500) 5,360,335 10,810,335 4) Stockholders' Equity Stockholders' Equity Paid in Capital: Common stock, $10 Stated Value (340,000 share authorized, 299,250 shares issued) Paid-In Capital in Excess of Stated Value-Common Stock Paid-in capital from sale of treasury stock Total Paid-in capital Retained Earnings Total Less: Treasury stock (15,000 Shares, at cost) Total Stockholders' Equity 2,992,500 834,000 72,000 3,898,500 10,810,335 14,708,835 300,000 14,408,835