Explanation Appropriation of retained earnings : The restricted use of the retained earnings for funding future business plans like expansion of business activities, meet the payment of debt obligations, purchase of treasury stock , or meet any contingencies, is referred to as appropriation of retained earnings. Journal entry : Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically. Debit and credit rules: Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts. Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts. Journalize the given transactions in the books of Company K . Transaction on March 16: Date Account Titles and Explanation Post Ref. Debit ($) Credit ($) 20-- March 16 Retained Earnings 50,000 Retained Earnings Appropriated for Factory Equipment 50,000 (Record appropriation of retained earnings for factory equipment) Table (1) Description: Retained Earnings is a stockholders’ equity account. Since a portion of retained earnings are appropriated, the retained earnings amount decreased, and a decrease in equity is debited. Retained Earnings Appropriated for Factory Equipment is a stockholders’ equity account. Since a portion of retained earnings are appropriated, the retained earnings appropriated amount increased, and an increase in equity is credited. Transaction on November 5: Date Account Titles and Explanation Post Ref. Debit ($) Credit ($) 20-- November 5 Warehouse 70,000 Cash 70,000 (Record purchase of warehouse for cash) Table (2) Description: Warehouse is an asset account. The amount is increased because warehouse is acquired, and an increase in assets should be debited. Cash is an asset account. Since cash is paid, asset value decreased, and a decrease in asset is credited. Transaction on November 5: Date Account Titles and Explanation Post Ref. Debit ($) Credit ($) 20-- November 5 Retained Earnings Appropriated for Warehouse 70,000 Retained Earnings 70,000 (Record use of appropriated retained earnings) Table (3) Description: Retained Earnings Appropriated for Warehouse is a stockholders’ equity account...

22nd Edition

ISBN: 9781305667679

Author: James A. Heintz; Robert W. Parry

Publisher: Cengage South-Western

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Chapter 21, Problem 10SPB

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College Accounting, Chapters 1-9

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Journalize the given transactions in the books of Company K.

Solution Summary: Journal entry is a set of economic events which can be measured in monetary terms.

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