Question

Kohler Corporation reports the following components of stockholders’ equity on December 31, 2017.

Common stock—$15 par value, 100,000 shares authorized, 40,000 shares issued and outstanding	$	600,000
Paid-in capital in excess of par value, common stock		80,000
Retained earnings		400,000
Total stockholders' equity	$	1,080,000

In year 2018, the following transactions affected its stockholders’ equity accounts.

Jan.		1		Purchased 4,500 shares of its own stock at $15 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 1,688 of its treasury shares at $19 cash per share.
Aug.		22		Sold 2,812 of its treasury shares at $12 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 2018.
2. Prepare a statement of retained earnings for the year ended December 31, 2018.
3. Prepare the stockholders' equity section of the company’s balance sheet as of December 31, 2018.

Answer 1

1) Journal Entries :-

Date	Particulars	Debit($)	Credit($)
Jan. 1	Treasury Stock A/c - Common Stock	67500
	To Cash A/c (4500*$15)		67500
	(To Record Purchase Treasury Stock)
Jan. 5	Retained Earnings A/c Dr.(35500*$2)	71000
	To Common Stock Dividend Payable A/c		71000
	(To Record Dividend Declared)
Feb. 28	Common Stock Dividend Payable A/c Dr.	71000
	To Cash A/c		71000
	(To Record Dividend Paid)
Jul. 6	Cash A/c Dr. (1688*$19)	32072
	To Treasury Stock A/c - Common (1688*$15)		25320
	To Paid in Capital A/c - Treasury Stock (1688*$4)		6752
	(To Record Reissue of Treasury Stock at $19)
Aug. 22	Cash A/c Dr. (2812*$12)	33744
	Paid in Capital A/c Dr. - Treasury Stock	6752
	Retained Earnings A/c Dr. (Bal. Fig.)	1684
	To Treasury Stock A/c - Common Stock(2812*$15)		42180
	(To Record Reissue of Treasury Stock at $12)
Sep. 5	Retained Earning A/c Dr. (40000*$2)	80000
	To Common stock Dividend Payable A/c		80000
	(To Record Dividend Declared )
Oct. 28	Common Stock Dividend Payable A/c Dr.	80000
	To Cash A/c		80000
	(To Record Dividend Paid)
Dec. 31	Income Summary A/c Dr.	388000
	To Retained Earnings A/c		388000
	(To Recored Profit Transfer to Retained Earning A/c)

2) Statement of Retained Earnings :-

Particulars	Amount($)
Retained Earnings at December 31, 2017	400000
Add : Net Income	388000
Total	788000
Less : Cash Dividends Declared (71000+80000)	(151000)
Less : Treasury Stock Reissuances	(1684)
Retained Earnings at December 31, 2018	635316

3) Stockholder's Equity ;-

Particulars	Amount($)
Common Stock (40000*$15)	600000
Paid in Capital in Excess of Par	80000
Retained Earnings (from Above)	635316
Total Stockholder's Equity	1315316