
1.
To prepare:
1.

Answer to Problem 18E
Solution:
Date | Account Title and | Post ref | Debit($) | Credit($) |
Jan 2 | Treasury stocks | 75,000 | ||
Cash | 75,000 | |||
(Being treasury stocks is purchased ) |
Table (1)
- Treasury stocks are equity. Since, own equity is purchased, it reduces equity. Hence, debit treasury stocks account.
- Cash is an asset. Since, cash is used to purchase treasury stock, it reduces asset. Hence credit cash account.
Declared a cash dividend payable:
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jan 7 | 40,500 | |||
Dividend payable | 40,500 | |||
(Being dividend is declared and it became a liability ) |
Table (2)
- Retained earnings are a part of equity. Since, dividend is being paid, it reduced equity. Hence debit retained earnings account
- Dividend payable is a liability. Since, dividend is an expense but not paid yet, it increases liability. Hence, credit dividend payable account.
Dividend paid which was declared on Jan 7.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Feb 28 | Dividend payable | 40,500 | ||
Cash | 40,500 | |||
(Being dividend is paid ) |
Table (3)
- Common stock dividend payable is a liability. Since, dividend is paid, it decreases liability. Hence, debit common stock dividend payable account.
- Cash is an asset. Since, cash is used to pay dividend, it reduces asset. Hence credit cash account.
Some of the treasury stock reissued.
Date | Account Title and | Post ref | Debit($) | Credit($) |
July 9 | Cash | 36,000 | ||
Treasury stocks | 30,000 | |||
Paid in capital in excess of par value, treasury stock | 6,000 | |||
(Being dividend is paid ) |
Table (4)
- Cash is an asset. Since, cash is received, it increases asset. Hence debit cash account.
- Treasury stock is equity. Since, shares is issued, it increases equity. Hence, credit treasury stock account.
- Paid in capital in excess of par value, treasury stock is part of a shareholder’s fund. Since, money is received, it increases equity. Hence, credit paid in capital in excess of par value, treasury stock.
Some of the treasury stock reissued.
Date | Account Title and | Post ref | Debit($) | Credit($) |
Aug 27 | Cash | 30,000 | ||
Paid in capital in excess of par value, treasury stock | 6,000 | |||
Retained Earnings | 1,500 | |||
Treasury stocks | 37,500 | |||
(Being dividend is paid ) |
Table (5)
- Cash is an asset. Since, cash is received, it increases asset. Hence debit cash account.
- Paid in capital in excess of par value, treasury stock is part of a shareholder’s fund. Since, money is used, it decreases equity. Hence, debit paid in capital in excess of par value, treasury stock.
- Retained earnings are a part of equity. Since, shares is issued at below face value, it create loss and reduces equity. Hence, debit retained earnings account.
- Treasury stock is equity. Since, shares is issued, it increases equity. Hence, credit treasury stock account.
Declared a cash dividend payable:
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Sep 9 | Retained earnings | 59,400 | ||
Dividend payable | 59,400 | |||
(Being dividend is declared and it became a liability ) |
Table (6)
- Retained earnings are a part of equity. Since, dividend is being paid, it reduced equity. Hence debit retained earnings account
- Dividend payable is a liability. Since, dividend is an expense but not paid yet, it increases liability. Hence, credit dividend payable account.
Dividend paid which was declared on Sep 9.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Oct 22 | Dividend payable | 59,400 | ||
Cash | 59,400 | |||
(Being dividend is paid ) |
Table (7)
- Common stock dividend payable is a liability. Since, dividend is paid, it decreases liability. Hence, debit common stock dividend payable account.
- Cash is an asset. Since, cash is used to pay dividend, it reduces asset. Hence credit cash account.
Income Summary transfer to retained earnings account for closing:
Date | Particulars | Post ref | Debit($) | Credit($) |
Dec 31 | Income Summary | 52,000 | ||
Retained Earning | 52,000 | |||
(Being net income transfer to retained earnings) |
Table (8)
Explanation of Solution
- Income summary is a temporary account. Since, it is used for transferring net income summary to retained account. Hence, debit income summary account.
- Retained earnings come under
stockholder’s equity . Since, retained earning has increased. Hence, credit retained earning account.
2.
To prepare: Statement of retained earnings/
2.

Explanation of Solution
A. Company |
|
Retained Earnings Statement |
|
For the year ended December 31, 2017 |
|
Particulars |
Amount ($) |
Opening balance |
340,000 |
Net income |
52,000 |
Dividends |
(99,900) |
Treasury stock |
(1,500) |
Retained earnings |
290,600 |
Table (9)
Hence, retained earnings are $290,600.
3.
To prepare: Stockholder’s equity section of
3.

Explanation of Solution
A. Company |
|
Partial Balance Sheet |
|
As on December 31, 2017 |
|
Particulars |
Amount ($) |
Common stock-$25 par value, 50,000 shares authorized, 30,000 shares issued and outstanding |
750,000 |
Paid in capital in excess of par value, common stock |
50,000 |
Retained earnings |
290,600 |
Retained earnings |
1,090,600 |
Table (10)
Hence, stockholder’s equity is $1,090,600.
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Chapter 11 Solutions
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