
1.
To prepare:
1.

Explanation of Solution
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jan 1 | Treasury Stocks | 80,000 | ||
Cash | 80,000 | |||
(Being treasury stocks is purchased ) |
- 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 5 | 72,000 | |||
Dividend Payable | 72,000 | |||
(Being dividend is declared and it became a liability ) |
- 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 5.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Feb 28 | Dividend Payable | 72,000 | ||
Cash | 72,000 | |||
(Being dividend is paid ) |
- 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 Explanation | Post ref | Debit($) | Credit($) |
July 6 | Cash | 36,000 | ||
Treasury Stocks | 30,000 | |||
Paid in capital in excess of par value, treasury stock | 6,000 | |||
(Being dividend is paid ) |
- 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 Explanation | Post ref | Debit($) | Credit($) |
Aug 22 | Cash | 42,500 | ||
Paid in capital in excess of par value, treasury stock | 6,000 | |||
Retained Earnings | 1,500 | |||
Treasury Stocks | 50,000 | |||
(Being dividend is paid ) |
- 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 5 | Retained Earnings | 80,000 | ||
Dividend Payable | 80,000 | |||
(Being dividend is declared and it became a liability ) |
- 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 5.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Oct 28 | Dividend Payable | 80,000 | ||
Cash | 80,000 | |||
(Being dividend is paid ) |
- 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 | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Dec 31 | Income Summary | 388,000 | ||
Retained Earning | 388,000 | |||
(Being net income transfer to retained earnings) |
- 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.
To prepare: Retained earnings statement.

Explanation of Solution
Prepare retained earnings statement.
K. Company |
|
Retained Earnings Statement |
|
For the Year Ended December 31, 2017 |
|
Particulars |
Amount ($) |
Opening balance of retained earnings |
270,000 |
Plus: Net income |
388,000 |
658,000 |
|
Less: Dividends |
(152,000) |
Treasury stock |
(1,500) |
Closing balance of retained earnings |
504,500 |
Hence, retained earnings are $506,000.
3.
To prepare: Stockholder’s equity section.

Explanation of Solution
Prepare stockholder’s equity section of the
K. Company |
|
Partial Balance Sheet |
|
As on December 31, 2017 |
|
Stockholder’s Equity |
Amount ($) |
Common stock-$25 par value, 50,000 shares authorized, 30,000 shares issued and outstanding |
400,000 |
Paid in capital in excess of par value, common stock |
60,000 |
Retained earnings |
504,500 |
Total Stockholder’s Equity |
964,500 |
Hence, stockholder’s equity is $964,500.
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Chapter 11 Solutions
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