Q44PGA-2 - Horngren'S Financial And Managerial Accounting

Question

Journalizing dividend and treasury stock transactions, preparing a statement of retained earnings, and preparing stockholders’ equity

The balance sheet of Goldstein Management Consulting, Inc. at December 31, 2017, reported the following stockholders’ equity:

Common Stock—\(10 Par Value; 350,000 shares

 authorized, 32,000 shares issued and outstanding

Paid-In Capital:

160,000

\) 320,000

650,000

Retained Earnings

Total Stockholders’ Equity \( 810,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 330,000

Total Paid-In Capital

During 2018, Goldstein completed the following selected transactions:

Feb. 6 Declared a 15% stock dividend on common stock. The market value of 

Goldstein’s stock was \)25 per share.

15 Distributed the stock dividend.

Jul. 29 Purchased 2,300 shares of treasury stock at \(25 per share.

Nov. 27 Declared a \)0.10 per share cash dividend on the common stock outstanding.

Requirements

2. Prepare a retained earnings statement for the year ended December 31, 2018. Assume Goldstein’s net income for the year was $90,000.

Step-by-Step Solution

Answer

Statement of Retained Earnings for the year ended December 31, 2018, is $246,800.

Step 1: Basic calculation

$\begin{array}{rcl}\mathbf{DividendPaid}& \mathbf{=}& \mathbf{NumberofSharesDividendRate}\\ & \mathbf{=}& \mathbf{32}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{\$}\mathbf{0}\mathbf{.}\mathbf{10}\\ & \mathbf{=}& \mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{200}\\ & & \end{array}$

Step 2: Statement of Retained Earnings-

Statement of Retained Earnings December 31, 2018
Retained Earnings, beginning of the year	$160,000
Less: Dividend paid	($3,200)
Add: Net Income	$90,000
Retained Earnings, ending of the year	$246,800