Question

Problem 13-2A Cash dividends, treasury stock, and statement of retained earnings LO C3, P2, P3

Kohler Corporation reports the following components of stockholders’ equity on December 31, 2016:

Common stock—$10 par value, 100,000 shares authorized, 40,000 shares issued and outstanding	$	400,000
Paid-in capital in excess of par value, common stock		60,000
Retained earnings		270,000
Total stockholders' equity	$	730,000

In year 2017, the following transactions affected its stockholders’ equity accounts.

Jan.		1		Purchased 4,000 shares of its own stock at $20 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 1,500 of its treasury shares at $24 cash per share.
Aug.		22		Sold 2,500 of its treasury shares at $17 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 2017.
2. Prepare a statement of retained earnings for the year ended December 31, 2017.
3. Prepare the stockholders’ equity section of the company’s balance sheet as of December 31, 2017.

• Required 1
• Required 2
• Required 3

Prepare journal entries to record each of these transactions for 2017.

Answer 1

Date	Particulars	Debit	Credit
1-Jan	Treasury stock, Common(4,000*$20)	80,000
	Cash		80,000
5-Jan	Retained earnings ((40,000 - 4,000)*2)	72,000
	Common dividend payable		72,000
28-Feb	Common dividend payable	72,000
	Cash		72,000
6-Jul	Cash(1,500*$24)	36,000
	Treasury stock, Common (1,500*$20)		30,000
	Paid-in capital, Treasury stock		6,000
22-Aug	Cash (2,500*$17)	42,500
	Paid-in capital, Treasury stock	6,000
	Retained earnings	1,500
	Treasury stock, Common (2,500*$20)		50,000
5-Sep	Retained earnings (40,000*2)	80,000
	Common dividend payable		80,000
28-Oct	Common dividend payable	80,000
	Cash		80,000
31-Dec	Income summary	388,000
	Retained earnings		388,000
2
	KOHLER CORPORATION
	Statement of Retained Earnings
	For Year Ended December 31, 2017
	Retained earnings, Dec. 31, 2017	270,000
	Add: Net income	388,000
		658,000
	Less: Cash dividends declared (72,000 +80,000)	-152,000
	Less: Treasury stock reissuance's	-1,500
	Retained earnings, Dec. 31, 2017	504,500
3
	KOHLER CORPORATION
	Stockholders' Equity Section of the Balance Sheet
	December 31, 2017
	Common stock - $10 par value	400,000
	Paid-in capital in excess of par value, common stock	60,000
	Total contributed capital	460,000
	Retained earnings	504,500
	Total stockholders' equity	964,500

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