Question

CHAPTER 18 (2.)

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

Paid-in capital:
Preferred stock, 8.0%, 85,000 shares at $1 par	$	85,000
Common stock, 353,500 shares at $1 par		353,500
Paid-in capital—excess of par, preferred		1,475,000
Paid-in capital—excess of par, common		2,525,000
Retained earnings		8,545,000
Treasury stock, at cost; 3,500 common shares		(38,500	)
Total shareholders' equity	$	12,945,000

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 225,000 shares of Leasco International common stock that Consolidated Paper had purchased in January as an investment (book value: $885,000). 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 8.0% cash dividend on the 85,000 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 $750,000.

Answer 1

ANSWER

Journal Entries
Date	Account titles & Explanations		Debit	Credit
Mar-03	investment in Leasco		15000
	International Stock			15000
	To Gain on Investment
	(225000*4 - 885000)
	Retained earnings		900000
	To Property Dividends Payable			900000
Mar-15	No Entry on record date
Mar-31	Property Dividends Payable		900000
	to investment in Leasco			900000
	International Stock
May-03	Paid in Capital in excess of par		87500
	to common Stock			87500
	(353500-3500)*25%*1)
Jul-05	Retained earnings(13125*11)		144375
	Common stock			13125
	Paid in excess of par -CS			131250
	(350000+87500)*3%=13125
Dec-01	Retained earnings		6800
	To dividend payable			6800
	(85000*8%)
Dec-20	No entry
Dec-28	Dividend payable		6800
	To Cash			6800
Dc 01	Retained earnings		270375
	To Dividend payable			270375
	(350000+87500+13125)*.60
Dec-20	No entry
Dec-28	Dividends payable		270375
	To Cash			270375
2) Preferred stock 8% , 85,000 shares at $1
common stock 454125 (353500 +87500+13125)*1				454125
Treasury stock at cost 3500				38500
Paid in capital in excess of par =2525,000-87500+131250 = 2568750
Retained earnings=8545000-900,000 - 144375-6800-270375=7,223,450
		= 7223450 +750000 net income = 7,973,450
Balance Sheet
Paid in Capital
Preferred stock			85,000
Common stock			454125
Paid in Capital in excess of par
Preferred stock			14,75,000
Common stock			25,68,750
Retained earnings			79,73,450
Treasury stock			-38,500
Stockholders Equity			1,25,17,825

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