Question

Kohler Corporation reports the following components of stockholders' equity on December 31, 2016: Common stock-$20 par value, 100,000 shares authorized 45,000 shares issued and outstanding Paid-in capital in excess of par value, common stock Retained earnings Total stockholders' equity $ 900,000 70,000 430,000 $1,400,000 In year 2017, the following transactions affected its stockholders' equity accounts. Jan. Jan. Feb. July Aug. Sept. 1 Purchased 4,000 shares of its own stock at $25 cash per share. 5 Directors declared a $4 per share cash dividend payable on February 28 to the February 5 stockholders of record. 28 Paid the dividend declared on January 5. 6 Sold 1,500 of its treasury shares at $29 cash per share. 22 Sold 2.500 of its treasury shares at $22 cash per share. 5 Directors declared a $4 per share cash dividend payable on October 28 to the September 25 stockholders of record. 28 Paid the dividend declared on September 5. 31 Closed the $368,000 credit balance (from net income) in the Income Summary account to Retained Earnings. Oct. Dec. Required: 1. Prepare iournal entries to record each of these transactions for 2017

Answer 1

Solution:

1.) Journal entries:

No.	Date	Account title and Explanation	Debit	Credit	Explanation
1.	Jan.1	Treasury stock	$100,000		Record treasury stock at cost (4,000 × $25)
				$100,000	Record outflow of cash made to purchase treasury stock
2.	Jan.5	Dividends	$164,000		Record dividends in contraequity account ((45,000 shares - 4,000 repurchased shares) ×$4)
		Dividends payable		$164,000	Record dividends to be paid
3.	Feb.28	Dividends payable	$164,000		Record dividends payable upon payment
		Cash		$164,000	Record outflow of cash in payment of dividends
4.	July 6	Cash	$43,500		Record inflow of cash from sale of treasury stock
		Treasury stock		$37,500	Remove treasury stock at cost (1500 × $25)
		Additional paid in capital treasury stock		$6,000	Record amount received in excess of cost (1500 × $4)
5.	Aug.22	Cash	$55,000		Record inflow of cash from sale of treasury stock (2500 × $22)
		Additional paid in capital treasury stock	$6,000		Remove additional paid in capital since treasury stock was sold below cost
		Retained earnings	$1,500		Balance the entry with a debit to retained earnings
		Treasury stock		$62,500	Remove treasury stock at cost (2500 ×25)
6.	Sept.5	Dividends	$180,000		Record dividends in contraequity account ((45000 shares - 4000 repurchased shares +2500 reissued +1500 reissued ) ×$4)
		Dividends payable		$180,000	Record dividends to be paid
7.	Oct.28	Dividends payable	$180,000		Remove payable upon payment
		Cash		$180,000	Record outflow of cash in payments of dividends
8.	Dec.31	Income summary	$368,000		Close income summary credit balance with a debit entry
		Retained earnings		$368,000	transfer income summary balance to retained earnings

2.) Statement of retained earnings

Retained earnings at December 31,2016	$430,000
Net income	$368,000
Less: dividends	$(344,000)
Less: treasury stock adjustment	$(1500)
Retained earnings December 31, 2017	$452,500

3.)

Paid in capital
Common stock - $20 par value, 100,000 shares authorized, 45,000 shares issued and outstanding	$900,000
Paid in capital excess of par value, common stock	$70,000
Total paid in capital	$970,000
Retained earnings	$452,500
Total stockholder' equity	$1,422,500