Question

The balance sheet of Consolidated Paper, Inc., included the following shareholders’ equity accounts at December 31, 2017:

Paid-in capital:
Preferred stock, 7.0%, 99,000 shares at $1 par	$	99,000
Common stock, 494,900 shares at $1 par		494,900
Paid-in capital—excess of par, preferred		1,605,000
Paid-in capital—excess of par, common		2,655,000
Retained earnings		9,845,000
Treasury stock, at cost; 4,900 common shares		(58,800	)
Total shareholders' equity	$	14,640,100

During 2018, 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 295,000 shares of Leasco International common stock that Consolidated Paper had purchased in January as an investment (book value: $561,000). The investment shares had a fair value of $2 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 $12 per share.
3. On July 5 a 2% common stock dividend was declared and distributed. The market value of the common stock was $12 per share.
4. On December 1 the board of directors declared the 7.0% cash dividend on the 99,000 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, 2018. Net income for the year was $890,000.

Answer 1

Date	General Journal	Debit	Credit
Mar-03	Investment in Leasco International stock	29,000
	Gain on investment		29,000
	590000-561000
Mar-03	Retained earnings	590,000
	Property dividends payable		590,000
	295000*2
Mar-15	No journal entry required
Mar-31	Property dividends payable	590,000
	Investment in Leasco International stock		590,000
May-03	Paid-in capital—Excess of par, common	122,500
	Common stock		122,500
	0.25*(494900-4900)
Jul-05	Retained earnings	147,000
	Common stock		12,250
	0.02*(490000+122500)
	Paid-in capital—Excess of par, common		134,750
Dec-01	Retained earnings	6,930
	Cash dividends payable		6,930
	0.07*99000
Dec-20	No journal entry required
Dec-28	Cash dividends payable	6,930
	Cash		6,930
Dec-01	Retained earnings	374,850
	Cash dividends payable		374,850
	(612500+12250)*0.6
Dec-20	No journal entry required
Dec-28	Cash dividends payable	374,850
	Cash		374,850

CONSOLIDATED PAPER, INC.
[Shareholders’ Equity section]
31-Dec-13
Paid-in capital:
Preferred stock	$          99,000.00
Common stock	$        629,650.00
Paid-in capital—excess of par, preferred	$     1,605,000.00
Paid-in capital—excess of par, common	$     2,667,250.00
2655000-122500+134750
Retained earnings:
Retained earnings	$     9,616,220.00
9845000-590000-147000-6930-374850+890000
Treasury stock	$         (58,800.00)
Total shareholders’ equity	$ 14,558,320.00