Chapter 13, Problem 2BPSB

Requirement-1:

To determine

To prepare:

The journal entries to record the transactions for 2016

Answer to Problem 2BPSB

Solution:

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

Journal entries
Date	Account title	Debit	Credit
Jan. 10	Treasury Stock	$ 480,000
	Cash		$ 480,000
Mar. 2	Retained earnings	$ 240,000
	Common Dividend Payable		$ 240,000
Mar. 31	Common Dividend Payable	$ 240,000
	Cash		$ 240,000
Nov. 11	Cash	$ 312,000
	Treasury Stock		$ 288,000
	Paid in excess par- Treasury stock		$ 24,000
Nov. 25	Cash	$ 152,000
	Paid in excess par- Treasury stock	$ 24,000
	Retained earnings	$ 16,000
	Treasury Stock		$ 192,000
Dec. 1	Retained earnings	$ 500,000
	Common Dividend Payable		$ 500,000
Dec. 31	Income Summary	$ 1,072,000
	Retained earnings		$ 1,072,000

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. 10	Treasury Stock	$ 480,000
	Cash		$ 480,000
	(Being 40000 treasury shares purchased @ $12 each for total $480,000)
Mar. 2	Retained earnings	$ 240,000
	Common Dividend Payable		$ 240,000
	(Being Cash dividend declared on (200000-40000) 160000 outstanding shares @ $1.5 each for total $240000)
Mar. 31	Common Dividend Payable	$ 240,000
	Cash		$ 240,000
	(Being Cash dividend declared paid in cash)
Nov. 11	Cash	$ 312,000
	Treasury Stock		$ 288,000
	Paid in excess par- Treasury stock (312000-288000)		$ 24,000
	(Being 24000 treasury shares sold for $13 each cash = (24000*13) = $312,000. The cost of these treasury stock is (24000*12) = $288,000
Nov. 25	Cash	$ 152,000
	Paid in excess par- Treasury stock	$ 24,000
	Retained earnings (192000-152000-24000)	$ 16,000
	Treasury Stock		$ 192,000
	(Being 16000 treasury shares sold for $9.50 each cash = (16000*$9.50) = $152,000. The cost of these treasury stock is (16000*12) = $192,000
Dec. 1	Retained earnings	$ 500,000
	Common Dividend Payable		$ 500,000
	(Being Cash dividend declared on (160000+24000+16000)= 200,000 outstanding shares @ $2.50 each for total $500,000)
Dec. 31	Income Summary	$ 1,072,000
	Retained earnings		$ 1,072,000
	(Being net income for the year 1,072,000 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 2BPSB

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	$ 2,160,000
Net Income for the year 2016	$ 1,072,000
Cash Dividends Declared	$ (740,000)
Treasury stock adjustment	$ (16,000)
Retained Earnings balance as on Dec. 31, 2016	$ 2,476,000

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	$ 2,160,000
Add: Net Income for the year 2016	$ 1,072,000
Less: Cash Dividends Declared (240000+500000)	$ (740,000)
Less: Treasury stock adjustment	$ (16,000)
Retained Earnings balance as on Dec. 31, 2016	$ 2,476,000

Conclusion

Conclusion:

Hence Retained Earnings balance as on Dec. 31, 2016 is $2,476,000

Requirement-3:

To determine

To prepare:

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

Answer to Problem 2BPSB

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-$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	$ 2,476,000
Total Stock holder's Equity	$ 4,076,000

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-$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	$ 2,476,000
Total Stock holder's Equity	$ 4,076,000

Conclusion

Conclusion:

Hence Total Stock holder's Equity as on Dec. 31, 2016 is $4,076,000