Q51PGB - 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 Cullins Management Consulting, Inc. at December 31, 2017, reported the following stockholders’ equity:

Common Stock—\(10 Par Value; 200,000 shares authorized, 22,000 shares issued and outstanding Paid-In Capital:

163,000

\) 220,000

580,000

Retained Earnings

Total Stockholders’ Equity \( 743,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 360,000

Total Paid-In Capital

During 2018, Cullins completed the following selected transactions:

Feb. 6 Declared a 5% stock dividend on common stock. The market value of 

Cullins’s stock was \)25 per share.

15 Distributed the stock dividend.

Jul. 29 Purchased 2,000 shares of treasury stock at \(25 per share.

Nov. 27 Declared a \)0.20 per share cash dividend on the common stock  outstanding.

Requirements

1. Record the transactions in the general journal.

2. Prepare a retained earnings statement for the year ended December 31, 2018. Assume Cullins’s net income for the year was $87,000.

3. Prepare the stockholders’ equity section of the balance sheet at December 31, 2018.

Step-by-Step Solution

Answer

a.

Stock dividend is debited; Common stock distributable and Paid- in capital in excess of par is credited.

b. Statement of Retained Earnings for the year ended December 31, 2018, is $245,820.

c. Total stockholders' equity of the company at the end of the year is $521,320

Step 1: Journals-

Date	Transaction	Debit	Credit
	Stock dividend	$27,500
	Common stock distributable		$11,000
	Paid- in capital in excess of par		$16,500
	To record stock dividend declared
	Common stock distributable	$11,000
	Common stock		$11,000
	To record stock dividend paid
	Cash	$50,000
	Treasury stock		$50,000
	To record purchase of treasury stock
	Retained earnings	$4,180
	Common stock dividend payable		$4,180
	To record dividend declared

Step 2: Statement of Retained Earnings-

Statement of Retained Earnings December 31, 2018
Retained Earnings, beginning of the year	$163,000
Less: Dividend paid	$4,180
Add: Net Income	$87,000
Retained Earnings, ending of the year	$245,820

Step 3: Balance Sheet (Partial)

Balance Sheet (Partial) Dec 31, 2018
Particulars	Amount ($)
Stockholder equity:
Common stock	$209,000
Paid-in capital-Common stock	$16,500
Treasury Stock	$50,000
Total paid in capital	$275,500
Add: Retained earnings	$245,820
Total stockholders' equity	$521,320