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Horngren'S Financial And Managerial Accounting
Found in: Page 724

Short Answer

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.

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

See the step by step solution

Step by Step Solution

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

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