Question

Cash dividends, treasury stock, and statement of retained earings Balthus Corp. reports the following components of stockholders' equity on December 31, 2015 Common stock si per values, 320,000 hores author tred, 200,000 sher e d and outstandes......... Paid in capital in exces of purva, como sock Retained mig... Tocal stockholders' equity $ 200,000 1,400,000 2,160,000 $3,760.000 It completed the following transactions related to stockholders' equity in year 2016: Jan. 10 Purchased 40,000 shares of its own stock at $12 cash per share. Mar. 2 Directors declared a $1.50 per share cash dividend payable on March 31 to the March 15 stockholders of record Mar. 31 Paid the dividend declared on March 2. Nov. 11 Sold 24,000 of its treasury shares at $13 cash per share. Nov. 25 Sold 16,000 of its treasury shares at $9.50 cash per share. Dec. 1 Directors declared a $2.50 per share cash dividend payable on January 2 to the December 10 stockholders of record. Dec. 31 Closed the $1,072,000 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 2016. 2. Prepare a statement of retained earnings for the year ended December 31, 2016. 3. Prepare the stockholders' equity section of the company's balance sheet as of December 31, 2016.

Answer 1

Requirement : 1

Date	Account title and explanation	Debit	Credit
Jan 10	Treasury stock [40,000 x $12]	$480,000
	Cash		$480,000
	[Repurchase of own shares]
Mar 2	Retained earnings	$240,000
	Dividends payable-common [160,000 x $1.50]		$240,000
	[Declared cash dividends]
Mar 31	Dividends payable-common	$240,000
	Cash		$240,000
	[Payment of cash dividends]
Nov 11	Cash [24,000 x $13]	$312,000
	Treasury stock [24,000 x $12]		$288,000
	Paid in excess of par from treasury stock		$24,000
	[Sale of treasury stock]
Nov 25	Cash [16,000 x $9.50]	$152,000
	Paid in excess of par from treasury stock	$24,000
	Retained earnings	$16,000
	Treasury stock [16,000 x $12]		$192,000
	[Sale of treasury stock]
Dec 1	Retained earnings	$500,000
	Dividends payable-common [200,000 x $2.50]		$500,000
	[Declared cash dividends]
Dec 31	Income summary	$1,072,000
	Retained earnings		$1,072,000
	[To close income summary account]

Requirement 2:

Balthus Corp.
Statement of retained earnings
For the year ended December 31,2016
Retained earnings, Jan 1,2016	$2,160,000
Net income	$1,072,000
Balance	$3,232,000
(Less): Cash dividends (240,000+500,000)	($740,000)
Treasury stock	($16,000)
Retained earnings, Dec 31,2016	$2,476,000

Requirement 3:

Balthus Corp.
Balance sheet (partial)
For the year ended December 31,2016
Stockholder's equity:
Common stock	$200,000
Paid in capital in excess of par, common stock	$1,400,000
Retained earnings	$2,476,000
Total stockholder's equity	$4,076,000

Calculations:

	Common Shares Outstanding
Beginning	200,000
Treasury stock	-40,000
Available shares for dividend on Mar 2	160,000
Sale of treasury stock on Nov 11	24,000
Sale of treasury stock on Nov 25	16,000
Available shares for dividend on Dec 1	200,000