Chapter 13, Problem 1GLP

To determine

Introduction:

Treasury Stocks are the stocks which are those numbers of issued stocks which are repurchased by the corporation. In other words, Treasury stock is the difference between Issued Stock and Outstanding Stock.

$\text{Treasury Stock = Issued Stock - Outstanding Stock}$

Requirement 1

To Determine:

Journal Entries for recording the given transaction

Answer to Problem 1GLP

Solution:

Date	Particulars	Debit	Credit
Jan.1	Common Stock, $10 par value	40,000
	Additional Paid-in-Capital	6,000
	Retained Earnings	34,000
	Cash		80,000
	(Stock repurchased at $20)
Jan.5	Retained Earnings	72,000
	Dividend Payable		72,000
	(Cash Dividend of $2 on each share declared)
Feb.28	Dividend Payable	72,000
	Cash		72,000
	(Cash Dividend declared)
July.6	Cash	36,000
	Additional paid-in-capital		6,000
	Treasury Stock		30,000
	(Treasury stock sold out above cost)
Aug.22	Cash	42,500
	Additional Paid-in-Capital- Treasury Stock	6,000
	Retained Earnings	1,500
	Treasury Stock		50,000
	(Treasury Stock sold out below cost)
Sep.5	Retained Earnings	80,000
	Dividend Payable		80,000
	(Cash Dividend declared)
Oct.28	Dividend Payable	80,000
	Cash		80,000
	(Cash Dividend paid)
Dec.31	Income Summary	388,000
	Retained Earnings		388,000
	(Credit balance of net income transferred to retained earnings)

Explanation of Solution

Explanations:

1. Calculation of Cash Dividend declared on Jan.5:

$\begin{array}{l}\text{Dividend to be paid = (Issued Stock - Treasury Stock)}\times \text{\$2}\\ \text{ = (40,000 - 4,000)}\times \text{\$2}\\ \text{ = 36,000}\times \text{\$2}\\ \text{ = \$72,000}\end{array}$

2. Calculation of Cash Dividend declared on Sep.5:

$\begin{array}{l}\text{Dividend to be paid = (Issued Stock - Treasury Stock)}\times \text{\$2}\\ \text{ = (40,000 - 0)}\times \text{\$2}\\ \text{ = 40,000}\times \text{\$2}\\ \text{ = \$80,000}\end{array}$

To determine

Requirement 2:

To Calculate:

Ending Balance of Retained Earnings

Answer to Problem 1GLP

Solution:

Kohler Corporation

Statement of Retained Earnings

For the year ended 31^st Dec. 2017

Particulars	Amount ($)
Retained Earnings on December 31, 2016	270,000
Net Income for the year ended Dec.31, 2017	388,000
Dividend paid to Shareholders	(152,000)
Treasury Stock reissuance	(1,500)
Retained Earnings at Dec.31, 2017	504,500

Explanation of Solution

Explanations:

The statement of retained earnings shows the changes in retained earnings during an accounting year. It generally starts with an opening balance of retained earnings and then different items of income and expenses are added and subtracted to arrive at the closing balance of retained earnings for the said accounting year. This can be calculated as follows:

$\text{Opening Retained Earnings + Net Income - Dividends = Ending Retained Earnings}$

To determine

Requirement 3:

To Calculate:

Stockholders’ Equity for the year 2017

Answer to Problem 1GLP

Solution:

Total Stockholders’ Equity at the year-end is $964,500

Explanation of Solution

Explanations:

Common stock- $10 par value, 100,000 shares authorized
40,000 shares issued and outstanding	$400,000
Paid-in-Capital in excess of par value, common stock	60,000
Retained Earnings	504,500
Total Stockholders’ Equity	964,500