Question

Accounting HELP?! Cash dividends, treasury stock, and statement of retained earnings.?

I am completely lost on this. I have several problems on the same lines as this one but if someone could help me figure this one out maybe I can piece in the slots??? Thanks everyone <3

Context Corporation reports the following components of stockholders’ equity on December 31, 2005:

Common stock—$10 par value, 50,000 shares authorized,

20,000 shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . $200,000

Contributed capital in excess of par value, common stock . . . . . . . . 30,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,000

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $365,000



In year 2006, the following transactions affected its stockholders’ equity accounts:

Jan. 1 Purchased 2,000 shares of its own stock at $20 cash per share.

Jan. 5 Directors declared a $2 per share cash dividend payable on Feb. 28 to the Feb. 5 stockholders of record.

Feb. 28 Paid the dividend declared on January 5.

July 6 Sold 750 of its treasury shares at $24 cash per share.

Aug. 22 Sold 1,250 of its treasury shares at $17 cash per share.

Sept. 5 Directors declared a $2 per share cash dividend payable on October 28 to the September
25 stockholders of record.

Oct. 28 Paid the dividend declared on September 5.

Dec. 31 Closed the $194,000 credit balance (from net income) in the Income Summary account to
Retained Earnings.



Required

1. Prepare journal entries to record these transactions for 2006.

2. Prepare a statement of retained earnings for the year ended December 31, 2006.

3. Prepare the stockholders’ equity section of the company’s balance sheet as of December 31, 2006.

Cash dividends, treasury stock, and statement of retained earnings
C2 C5 P3 P5 Check (2) Retained earnings, Dec. 31, 2006,

2 years ago - 2 answers

Best Answer

Chosen by Asker

Jan. 1 Purchased 2,000 shares of its own stock at $20 cash per share.
Dr Treasury Stock 40,000
Cr Cash 40,000
There are now 18,000 shares of common stock outstanding

Jan. 5 Directors declared a $2 per share cash dividend payable on Feb. 28 to the Feb. 5 stockholders of record.
Dr Retained Earnings 36,000
Cr Dividends Payable 36,000

Feb. 28 Paid the dividend declared on January 5.
Dr Dividends Payable 36,000
Cr Cash 36,000

July 6 Sold 750 of its treasury shares at $24 cash per share.
Dr Cash 18,000
Cr Common Treasury Stock 15,000 (750 x $20 purchase price)
Cr Paid-in Capital from Sale of Treasury Stock 3,000
There are now 18,750 shares of common stock outstanding

Aug. 22 Sold 1,250 of its treasury shares at $17 cash per share.
Dr Cash 21,250
Dr Paid-in Capital from Sale of Treasury Stock 3,000
Dr Retained Earnings 750
Cr Common Treasury Stock 25,000 (1,250 x $20 purchase price)
There are now 20,000 shares of common stock outstanding.
*Note: There is a debit to retained earnings because the "paid-in" account for treasury stock only had $3,000. The remainder is covered by retained earnings.

Sept. 5 Directors declared a $2 per share cash dividend payable on October 28 to the September
25 stockholders of record.
Dr Retained Earnings 40,000
Cr Dividends Payable 40,000

Oct. 28 Paid the dividend declared on September 5.
Dr Dividends Payable 40,000
Cr Cash 40,000

Dec. 31 Closed the $194,000 credit balance (from net income) in the Income Summary account to
Retained Earnings.
Dr Income Summary 194,000
Cr Retained Earnings 194,000

2. Prepare a statement of retained earnings for the year ended December 31, 2006.

Retained Earnings, Dec. 31, 2005 . . . $135,000
Net Income . . . . . . . . . . . . . . . . . . . . 194,000 . . . . . . . $329,000
Less:
Dividends . . . . . . . . . . . . . . . . . . . . . . 76,000
Sale of Treasury Stock . . . . . . . . . . . . . . .750 . . . . . . . . . 76,750
Retained Earnings, Dec. 31, 2006 . . . . . . . . . . . . . . . . . $252,250

3. Prepare the stockholders’ equity section of the company’s balance sheet as of December 31, 2006.

Common stock—$10 par value, 50,000 shares authorized,
20,000 shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . $200,000
Contributed capital in excess of par value, common stock . . . . . . . . . 30,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .252,250

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $482,250

Source(s):

2 years ago

Other Answers

Hello! I'm working on the same problem and was wondering where you got the 36,000 January 5th and February 28. I can not seem to figure it out. Just let me know! Thanks

by Brit - 5 months ago