Question

	Common stock $1 Par	Add. Paid in Cap	Retained Earnings	Treasury Stock	Total Share- Holders Equity
Bal. 1/1/2015	354,000	10,415,000	2,761,044	-	13,530,044
Common Shares	370,000	12,210,000
Shares Repurchase (83,500 shares)				(1,670,000)
Cash Dividends			(50,000)
Net Income			2,696,789
Bal. 12/31/2015	724,000	22,625,000	5,407,833	(1,670,000)	27,086,833
Cash Dividend Comm Stock			(75,000)
Stock div 5 for 4	181,000		(181,000)
Net Income			3,805,617
Bal. 12/31/216	905,000	22,625,000	8,957,450	(1,670,000)	31,817,450

Requirement 1: Use Journal Entries to establish beginning balances for each of the shareholders' equity accounts as of 1/1/15. Assume the only asset on Hawkins balance sheet was cash.

Requirement 2: Prepare journal entries for the events and transactions that affected Stockholders' equity during 2015 and 2016.

Answer 1

`1/1/15	Cash account Dr	13,530,044
	To Common Stock		354,000
	To Paid in capital, excess of par - Common		10,415,000
	To Retained Earnings		2,761,044
	(To record beginning balances as of 1/1/15)
2015	Cash account Dr	12,580,000
	To Common Stock		370,000
	To Paid in capital, excess of par - Common		12,210,000
	(To record Issue of 370,000 Common shares $1 Par value, Issue price $34)
	Par value if shares is $1, Common stock increased by 370,000, hence number of shares issued = 370,000/1 = 370,000
	Issue price is derived as follows - Total cash received / number of shares = 12,580,000 / 370,000
	Treasury Stock	1,670,000
	To Cash account		1,670,000
	(To record purchase of 83,500 shares @$20 each)
	Purchase price of Treasury stock = 1,670,000 / 83500 = $20 per share
	Retained Earnings Dr	50,000
	To Dividends Payable		50,000
	(To record dividends declared )
	Dividends Payable Dr	50,000
	To Cash		50,000
	(To record payment of dividends)
	Profit and Loss account dr	2,696,789
	To Retained earnings		2,696,789
	(Closing entry to record net income for the year)
2016	Retained Earnings Dr	75,000
	To Dividends Payable		75,000
	(To record dividends declared )
	Dividends Payable Dr	75,000
	To Cash		75,000
	(To record payment of dividends)
	Profit and Loss account dr	3,805,617
	To Retained earnings		3,805,617
	(Closing entry to record net income for the year)
	Retained Earnings dr	181,000
	To Common Stock - dividend distributable		181,000
	(To record Stock dividend declared - 5 for 4)
	Common Stock - dividend distributable	181,000
	To Common Stock		181,000
	(To record stock dividend issued)