Question

Shown below in T-account format are the changes affecting the retained earnings of Brenner-Jude Corporation during 2021. At January 1, 2021, the corporation had outstanding 102 million common shares, $1 par per share.
  

Retained Earnings ($ in millions)
		97	Beginning balance
Retirement of 2 million common shares for $26 million	5
		81	Net income for the year
Declaration and payment of a $0.40 per share cash dividend	40
Declaration and distribution of a 6% stock dividend	22
		111	Ending balance

Required:
1. From the information provided by the account changes, you should be able to recreate the transactions that affected Brenner-Jude’s retained earnings during 2021. Prepare the journal entries that Brenner-Jude must have recorded during the year for these transactions. (Hint: In lieu of revenues and expenses, use an account titled “Income summary” to close net income or net loss.)
2. Prepare a statement of retained earnings for Brenner-Jude for the year ended 2021.

Answer 1

Journal entry related to retained earnings changes are given below
Date	General Journal	Debit	Credit
	Common stock (2 million shares*$1 par value)	$2,000,000
	Paid in capital - excess of par (26000000-2000000-5000000)	$19,000,000
	Retained earnings	$5,000,000
	Cash		$26,000,000
	(To record common shares retired)
Date	General Journal	Debit	Credit
	Income summary	$81,000,000
	Retained earnings		$81,000,000
	(To close income summary account)
Date	General Journal	Debit	Credit
	Retained earnings	$40,000,000
	Cash		$40,000,000
	(To record cash dividend declared and paid)
Date	General Journal	Debit	Credit
	Retained earnings	$22,000,000
	Common stock ((102-2)*6%*$1 par value)		$6,000,000
	Paid in capital - excess of par (22 million - 6 million)		$16,000,000
	(To record stock dividend declared and paid)
2
Retained earnings statement is provided below:
	Statement of retained earnings
		$ in million
	Beginning balance, January 1	$97
	Net income for the year	$81
	Less:
	Retirement of common stock	-$5
	Cash dividend paid	-$40
	Stock dividend paid	-$22
	Retained earnings, December 31	$111