Chapter 13, Problem 18E

Requirement-1:

To determine

To prepare:

The journal entries to record the transactions for 2016

Answer to Problem 18E

Solution:

The journal entries to record the transactions for 2016 are as follows:

Journal entries
Date	Account title	Debit	Credit
Jan. 2	Treasury Stock	$ 75,000
	Cash		$ 75,000
Jan. 7	Retained earnings	$ 40,500
	Common Dividend Payable		$ 40,500
Feb. 28	Common Dividend Payable	$ 40,500
	Cash		$ 40,500
	(Being Cash dividend declared paid in cash)
Jul. 9	Cash	$ 36,000
	Treasury Stock		$ 30,000
	Paid in excess par- Treasury stock		$ 6,000
Aug. 27	Cash	$ 30,000
	Paid in excess par- Treasury stock	$ 6,000
	Retained earnings	$ 1,500
	Treasury Stock		$ 37,500
Sept. 9	Retained earnings	$ 59,400
	Common Dividend Payable		$ 59,400
Oct. 22	Common Dividend Payable	$ 59,400
	Cash		$ 59,400
Dec. 31	Income Summary	$ 52,000
	Retained earnings		$ 52,000

Explanation of Solution

Explanation:

The journal entries to record the transactions for 2016 are explained as follows:

Journal entries
Date	Account title	Debit	Credit
Jan. 2	Treasury Stock	$ 75,000
	Cash		$ 75,000
	(Being 3000 treasury shares purchased @ $25 each for total $75,000)
Jan. 7	Retained earnings	$ 40,500
	Common Dividend Payable		$ 40,500
	(Being Cash dividend declared on (30000-3000) 27000 outstanding shares @ $1.5 each for total $240000)
Feb. 28	Common Dividend Payable	$ 40,500
	Cash		$ 40,500
	(Being Cash dividend declared paid in cash)
Jul. 9	Cash	$ 36,000
	Treasury Stock		$ 30,000
	Paid in excess par- Treasury stock (36000-30000)		$ 6,000
	(Being 1200 treasury shares sold for $30 each cash = (1200*30) = $36,000. The cost of these treasury stock is (1200*25) = $30,000
Aug. 27	Cash	$ 30,000
	Paid in excess par- Treasury stock	$ 6,000
	Retained earnings (37500-30000-6000)	$ 1,500
	Treasury Stock		$ 37,500
	(Being 1500 treasury shares sold for $20 each cash = (1500*20) = $30000. The cost of these treasury stock is (1500*25) = $37500
Sept. 9	Retained earnings	$ 59,400
	Common Dividend Payable		$ 59,400
	(Being Cash dividend declared on (27000+1200+1500)= 29700 outstanding shares @ $2 each for total $59400)
Oct. 22	Common Dividend Payable	$ 59,400
	Cash		$ 59,400
	(Being Cash dividend declared on Sept. paid in cash)
Dec. 31	Income Summary	$ 52,000
	Retained earnings		$ 52,000
	(Being net income for the year 52,000 closed)

Conclusion

Conclusion:

Hence, the journal entries to record the transactions for 2016 are prepared.

2)

To determine

To prepare:

The Statement of Retained earnings for the year ended December 31, 2016

Answer to Problem 18E

Solution:

The Statement of Retained earnings for the year ended December 31, 2016 is as follows:

Statement of Retained earnings
For the year ended December 31, 2016
Retained Earnings balance as on Dec. 31, 2015	$ 340,000
Net Income for the year 2016	$ 52,000
Cash Dividends Declared	$ (99,900)
Treasury stock adjustment	$ (1,500)
Retained Earnings balance as on Dec. 31, 2016	$ 290,600

Explanation of Solution

Explanation:

The Statement of Retained earnings for the year ended December 31, 2016 is explained as follows:

Statement of Retained earnings
For the year ended December 31, 2016
Retained Earnings balance as on Dec. 31, 2015	$ 340,000
Add: Net Income for the year 2016	$ 52,000
Less: Cash Dividends Declared (40500+59400)	$ (99,900)
Less: Treasury stock adjustment	$ (1,500)
Retained Earnings balance as on Dec. 31, 2016	$ 290,600

Conclusion

Conclusion:

Hence Retained Earnings balance as on Dec. 31, 2016 is $290,600

Requirement-3:

To determine

To prepare:

The Stockholder's Equity Section of the Balance sheet as on December 31, 2016

Answer to Problem 18E

Solution:

The Stockholder's Equity Section of the Balance sheet as on December 31, 2016 is as follows:

Stockholder's Equity Section of the Balance sheet
As on December 31, 2016
Common Stock-$25 par value, 50,000 shares authorized, 30000 shares issued	$ 750,000
Paid in capital in excess of par value, common stock	$ 50,000
Less: Treasury Stock (300 shares @ $25)	$ (7,500)
Retained earnings	$ 290,600
Total Stock holder's Equity	$ 1,083,100

Explanation of Solution

Explanation:

The Stockholder's Equity Section of the Balance sheet as on December 31, 2016 is explained as follows:

Stockholder's Equity Section of the Balance sheet
As on December 31, 2016
Common Stock-$25 par value, 50,000 shares authorized, 30000 shares issued	$ 750,000
Paid in capital in excess of par value, common stock	$ 50,000
Less: Treasury Stock (300 shares @ $25)	$ (7,500)
Retained earnings	$ 290,600
Total Stock holder's Equity	$ 1,083,100

Conclusion

Conclusion:

Hence Total Stock holder's Equity as on Dec. 31, 2016 is $1,083,100