1.
Prepare journal entries to record the transactions for 2016.
1.
Explanation of Solution
Rules of Debit and Credit: Following rules are followed for debiting and crediting different accounts while they occur in business transactions:
- Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
- Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.
Prepare journal entries to record the transactions as follows:
Date | Account Titles | Debit ($) | Credit ($) |
January 10 | Treasury Stock | 480,000 | |
Cash | 480,000 | ||
(To record purchase of treasury stock) | |||
March 2 | Retained earnings | 240,000 | |
Common dividend payable | 240,000 | ||
(To record the dividend declaration) | |||
March 31 | Common dividend payable | 240,000 | |
Cash | 240,000 | ||
(To record the payment of cash dividend) | |||
November 11 | Cash | 312,000 | |
Treasury Stock | 288,000 | ||
Paid-In Capital, Treasury stock | 24,000 | ||
(To record sale of treasury stock for above the cost price) | |||
November 25 | Cash | 152,000 | |
Paid-in Capital, Treasury stock | 24,000 | ||
Retained Earnings | 16,000 | ||
Treasury Stock, Common | 192,000 | ||
(To record sale of treasury stock) | |||
December 1 | Retained earnings | 500,000 | |
Common dividend payable | 500,000 | ||
(To record the dividend declaration) | |||
December 31 | Income summary | 1,072,000 | |
Retained earnings | 1,072,000 | ||
(To close the income summary account) |
Table (1)
2.
Prepare a statement of retained earnings for the year ended December 31, 2016.
2.
Explanation of Solution
Statement of Retained Earnings: Statement of retained earnings shows, the changes in the retained earnings, and the income left in the company after payment of the dividends, for the accounting period.
Prepare a statement of retained earnings for the year ended December 31, 2016 as follows:
Corporation B | |
Statement of Retained Earnings | |
For Year Ended December 31, 2016 | |
Retained earnings, December 31, 2018 | $2,160,000 |
Add: Net Income | 1,072,000 |
3,232,000 | |
Less: Cash dividends declared | (740,000) |
Treasury stock reissuances | (16,000) |
Retained earnings, December 31, 2016 | $2,476,000 |
Table (2)
Therefore, retained earnings as on December 31, 2016 are $2,476,000.
3.
Prepare the
3.
Explanation of Solution
Balance Sheet: Balance Sheet is one of the financial statements which summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.
Stockholders’ Equity: Stockholders Equity refers to the right of the owner to possess over the resources of the business. Common stock and the retained earnings are the components of the Stockholders Equity.
Prepare the stockholders’ equity section of the company’s balance sheet as of December 31, 2016 as follows:
Corporation B | |
Stockholders’ Equity Section of the Balance Sheet | |
For Year Ended December 31, 2016 | |
Common stock–$1 par value; 320,000 shares authorized, 200,000 shares issued and outstanding | $200,000 |
Paid-in capital in excess of par value, Common stock | 1,400,000 |
Retained earnings (Refer part 2) | 2,476,000 |
Total stockholders’ equity | $4,076,000 |
Table (3)
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