Question

Kohler Corporation reports the following components of stockholders’ equity on December 31, 2016:

Common stock—$25 par value, 100,000 shares authorized, 40,000 shares issued and outstanding	$	1,000,000
Paid-in capital in excess of par value, common stock		70,000
Retained earnings		370,000
Total stockholders' equity	$	1,440,000

In year 2017, the following transactions affected its stockholders’ equity accounts.

Jan.		1		Purchased 4,500 shares of its own stock at $20 cash per share.
Jan.		5		Directors declared a $4 per share cash dividend payable on February 28 to the February 5 stockholders of record.
Feb.		28		Paid the dividend declared on January 5.
July		6		Sold 1,688 of its treasury shares at $24 cash per share.
Aug.		22		Sold 2,812 of its treasury shares at $17 cash per share.
Sept.		5		Directors declared a $4 per share cash dividend payable on October 28 to the September 25 stockholders of record.
Oct.		28		Paid the dividend declared on September 5.
Dec.		31		Closed the $388,000 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 2017.
2. Prepare a statement of retained earnings for the year ended December 31, 2017.
3. Prepare the stockholders' equity section of the company’s balance sheet as of December 31, 2017.

Answer 1

1. Prepare journal entries to record each of these transactions for 2017.

Date	General Journal	Debit	Credit
Jan 01	Treasury stock, common	90000
	Cash(4500 x 20)		90000
Jan 05	Retained earnings	155500
	Common dividend payable(40000 x 4 - 4500)		155500
Feb 28	Common dividend payable	155500
	Cash		155500
July 06	Cash(1688 x 24)	40512
	Paid-in capital, treasury stock	1688
	Treasury stock, common(1688 x 25)		42200
Aug 22	Cash(2812 x 17)	47804
	Paid-in capital, treasury stock	1688
	Retained earnings	20808
	Treasury stock, common(2812 x 25)		70300
Sept 05	Retained earnings(40000 x 4)	160000
	Common dividend payable		160000
Oct 28	Common dividend payable	160000
	Cash		160000
Dec 31	Income summary	388000
	Retained earnings		388000

2. Prepare a statement of retained earnings for the year ended December 31, 2017.

Retained earnings, December 31, 2017	$370000
Add: Net income	388000
	758000
Less: Cash dividends declared	315500
Less: Treasury stock reissuances	20808
Retained earnings, December 31, 2017	$421692

3.
Prepare the stockholders' equity section of the company’s balance sheet as of December 31, 2017.

Common stock - $25 par value	$1000000
Paid-in capital in excess of par value, common stock	70000
Retained earnings	421692
Less: cost of treasury stock	10104
Total stockholders’ equity	$1481588