Chapter 11, Problem 2PSA

1.

Summary Introduction

Journal Entry Journal entries are referredto recording of monetary transactions that are related to the business in such a way that debit is equal to the credit.

To determine:Preparation of Journal Entries for 2016.

Answer to Problem 2PSA

Net Income is equal to $388,000.

Explanation of Solution

Date	Account Title	Debit ($)	Credit ($)
1-Jan	Treasury   stock,   Common   $(4,000\times 20)$	80,000
	……Cash   $(4,000\times 20)$		80,000
5-Jan	Retained Earnings   $\left[(40,000-4,000)\times 2\right]$	72,000
	…….Common Dividend Payable		72,000
28-Feb	Common Dividend Payable	72,000
	…….Cash		72,000
6-July	Cash   $(1,500\times 24)$	36,000
	…….. Treasury stock, Common   $(1,500\times 20)$		30,000
	……..Paid-in Capital, Treasury Stock		6,000
22-Aug	Cash   $(2,500\times 17)$	42,500
	Paid-in Capital, Treasury Stock	6,000
	Retained Earnings	1,500
	…….. Treasury stock, Common   $(2,500\times 20)$		50,000
5-Sept	Retained Earnings   $(40,000\times 2)$	80,000
	……… Common Dividend Payable		80,000
28-Oct	Common Dividend Payable	80,000
	……..Cash		80,000
31-Dec	Income Summary	388,000
	…….Retained Earnings		388,000

2.

Summary Introduction

Retained Earnings Retained Earnings are referred as an accumulated net income which is retained by the company at a particular point of time.

To Determine:Preparation of statement of Retained Earnings.

Answer to Problem 2PSA

Retained Earnings on December 31, 2016 is equal to 504,500.

Explanation of Solution

        K’s Corporation

      Statement of Retained Earnings

    For the year ended December 31, 2016

Retained earnings, December 31, 2015	270,000
Add: Net Income	388,000
	658,000
Less: Cash dividends declared (72,000 + 80,000)	(152,000)
Less: Loss on sale of treasury stock	(1,500)
Retained earnings, December 31, 2016	504,500

Working notes:

Purchase price of stock= 4000 × 20 = $80,000

Sale price of stock= (1,500 × 24) + (2,500 × 24)

    = 36,000 + 42,500

     = $78,500

Loss on issue of treasury stock= $80,000 - $78,500 = $1,500

Summary Introduction

Stockholder’s Equity

Stockholder’s equity is also known as shareholder’s equity. Stockholder’s equity is one of the sections of balance sheet. It can be calculated by rearranging the following equation:

Stockholder’s Equity = Assets - Liabilities

To determine:Preparation of stockholder’s equity section of balance sheet.

Answer to Problem 2PSA

Total stockholder’s equity is equal to $964,500.

Explanation of Solution

        K’s Corporation

    Stockholder’s Equity Section of the balance sheet

    For the year ended December 31, 2016

Common Stock - $10 par value	400,000
Paid-in capital in excess of par value, common stock	60,000
Total contribution capital	460,000
Retained Earnings	504,500
Total Stockholder’s Equity	964,500