Question

The balance sheet of Consolidated Paper, Inc., included the following shareholders’ equity accounts at December 31, 2020:

Paid-in capital:
Preferred stock, 7.5%, 88,000 shares at $1 par	$	88,000
Common stock, 383,800 shares at $1 par		383,800
Paid-in capital—excess of par, preferred		1,505,000
Paid-in capital—excess of par, common		2,555,000
Retained earnings		8,845,000
Treasury stock, at cost; 3,800 common shares		(41,800	)
Total shareholders' equity	$	13,335,000

During 2021, several events and transactions affected the retained earnings of Consolidated Paper.

Required:
1. Prepare the appropriate entries for these events.

1. On March 3, the board of directors declared a property dividend of 245,000 shares of Leasco International common stock that Consolidated Paper had purchased in January as an investment (book value: $962,000). The investment shares had a fair value of $4 per share and were distributed March 31 to shareholders of record March 15.
2. On May 3, a 5-for-4 stock split was declared and distributed. The stock split was effected in the form of a 25% stock dividend. The market value of the $1 par common stock was $11 per share.
3. On July 5, a 3% common stock dividend was declared and distributed. The market value of the common stock was $11 per share.
4. On December 1, the board of directors declared the 7.5% cash dividend on the 88,000 preferred shares, payable on December 28 to shareholders of record December 20.
5. On December 1, the board of directors declared a cash dividend of $0.60 per share on its common shares, payable on December 28 to shareholders of record December 20.

2. Prepare the shareholders' equity section of the balance sheet for Consolidated Paper, Inc., at December 31, 2021. Net income for the year was $780,000.

equired" in the first account field.)

No	Date	General Journal	Debit	Credit
1	March 03	Investment in equity securitiesselected answer correct	18,000selected answer correct	not attempted
		Gain on investmentsselected answer correct	not attempted	18,000selected answer correct
2	March 03	Retained earningsselected answer correct	980,000selected answer correct	not attempted
		Property dividends payableselected answer correct	not attempted	980,000selected answer correct
3	March 15	Property dividends payableselected answer incorrect	980,000selected answer incorrect	not attempted
		Investment in equity securitiesselected answer incorrect	not attempted	980,000selected answer incorrect
4	March 31	No journal entry requiredselected answer incorrect	not attempted	not attempted
5	May 03	Paid-in capital - excess of par, commonselected answer correct	95,000selected answer correct	not attempted
		Common stockselected answer correct	not attempted	95,000selected answer correct
6	July 05	Retained earningsselected answer correct	104,500selected answer incorrect	not attempted
		Common stockselected answer correct	not attempted	9,500selected answer incorrect
		Paid-in capital - share repurchaseselected answer incorrect	not attempted	95,000selected answer incorrect
7	December 01	Retained earningsselected answer correct	6,600selected answer correct	not attempted
		Cash dividends payableselected answer correct	not attempted	6,600selected answer correct
8	December 20	Cash dividends payableselected answer incorrect	6,600selected answer incorrect	not attempted
		Cashselected answer incorrect	not attempted	6,600selected answer incorrect
9	December 28	Retained earningsselected answer incorrect	293,550selected answer incorrect	not attempted
		Cash dividends payableselected answer incorrect	not attempted	293,550selected answer incorrect

CONSOLIDATED PAPER, INC. [Shareholders’ Equity section] December 31, 2021 Paid-in capital: Preferred stockselected answer correct $88,000selected answer correct Common stockselected answer correct 493,050selected answer correct Paid-in capital - excess of par, preferredselected answer correct 1,505,000selected answer correct Paid-in capital - excess of par, commonselected answer correct 2,555,000selected answer incorrect not attempted not attempted Treasury stockselected answer correct (41,800)selected answer correct Total shareholders’ equity $4,599,250

Answer 1

1.

No.	Date	General Journal	Debit	Credit
1	March 03	Investment in equity securities	18000
		Gain on investments [(245000 x $4) - $962000]		18000
		(To record investment at fair value)
2	March 03	Retained earnings	980000
		Property dividends payable		980000
		(To record declaration of property dividend)
3	March 15	No journal entry required
4	March 31	Property dividends payable	980000
		Investment in equity securities		980000
		(To record distribution of property dividend)
5	May 03	Paid-in capital -excess of par, common	95000
		Common stock [25% x (383800 - 3800) = 95000 x $1]		95000
		(To record declaration and distribution of stock dividend)
6	July 05	Retained earnings [3% x (383800 - 3800 + 95000) = 14250 x $11]	156750
		Common stock (14250 x $1)		14250
		Paid-in-capital-excess of par, common		142500
		(To record declaration and distribution of stock dividend)
7	December 01	Retained earnings	6600
		Cash dividends payable ($88000 x 7.5%)		6600
		(To record declaration of cash dividends on preferred stock)
8	December 20	No journal entry required
9	December 28	Cash dividends payable	6600
		Cash		6600
		(To record distribution of preferred cash dividends)
10	December 01	Retained earnings	293550
		Cash dividends payable [$0.60 x (383800 - 3800 + 95000 + 14250)]		293550
		(To record declaration of cash dividends on common stock)
11	December 20	No journal entry required
12	December 28	Cash dividends payable	293550
		Cash		293550
		(To record distribution of cash dividends on common stock)

Note: Treasury stocks are excluded from all computations of dividends.

2.

CONSOLIDATED PAPER, INC.,
[Shareholders' Equity section]
December 31, 2021
Paid-in capital:
Preferred stock	88000
Common stock	493050
Paid-in capital-excess of par, preferred	1505000
Paid-in capital-excess of par, common	2602500
Retained earnings*	8188100
Treasury stock	-41800
Total shareholders' equity	12834850

*Retained earnings:

Retained earnings, beginning balance	8845000
Add: Net income	780000
	9625000
Less: Property dividend	-980000
Less: Stock dividends	-156750
Less: Cash dividend-preferred	-6600
Less: Cash dividend-common	-293550
Retained earnings, ending balance	8188100