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The stockholders’ equity section of Whisper Co. at December 31, 2018 is as follows. Common stock—$15 par value, 100,000 shares authorized, 45,000 shares issued and outstanding $ 675,000 Paid-in capital in excess of par value, common stock 70,000 Retained earnings 430,000 Total stockholders' equity $ 1,175,000 During 2019, the company has the transactions including the following.
Jan. 2 Purchased 6,000 shares of its own stock at $20 cash per share.
Jan. 5 Directors declared a $2 per share cash dividend payable on February 28 to the February 5 stockholders of record.
Feb. 28 Paid the dividend declared on January 5.
July 6 Sold 2,250 of its treasury shares at $24 cash per share.
Aug. 22 Directors declared a $2 per share cash dividend payable on October 28 to the September 25 stockholders of record.
Sept 5 Sold 3,750 of its treasury shares at $17 cash per share.
Oct. 28 Paid the dividend declared on September 5.
Dec. 31 Closed the $368,000 debit balance (from net loss) in the Income Summary account to Retained Earnings.
Required:
1. Prepare journal entries to record each of these transactions.
2. Prepare a statement of retained earnings for the year ended December 31, 2019.
3. Prepare the stockholders’ equity section of the company’s balance sheet as of December 31, 2019.

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anthougo

Answer:

Whisper Co.

1. Journal Entries to record transactions:

Jan. 2 Debit Treasury stock $90,000

Debit Paid-in Capital in Excess $30,000

Credit Cash $120,000

To record the purchase of 6,000 shares of its own stock at $20 cash per share.

Jan. 5 Debit Cash Dividend $78,000

Credit Dividend Payable $78,000

To record the declaration of a $2 per share cash dividend payable on 39,000 (45,000 - 6,000) shares

Feb. 28 Debit Dividend Payable $78,000

Credit Cash $78,000

To record the payment of the dividends.

July 6 Debit Cash $54,000

Credit Treasury stock $33,750

Credit Paid-in Capital in Excess $20,250

To record the resale of 2,250 of its treasury shares at $24 cash per share.

Aug. 22 Debit Cash Dividend $90,000

Credit Dividend Payable $90,000

To record the declaration of a $2 per share cash dividend payable on October 28 to the September 25 stockholders of record (45,000 shares).

Sept 5 Debit Cash $63,750

Credit Treasury stock $56,250

Credit Paid-in Capital in Excess $7,500

To record the resale of 3,750 of its treasury shares at $17 cash per share.

Oct. 28 Debit Dividend Payable $90,000

Credit Cash $90,000

To record the payment of the dividends.

Dec. 31 Debit Retained earnings $368,000

Credit  Income Summary $368,000

To close the net loss to the retained earnings.

2. Statement of Retained Earnings for the year ended December 31, 2019

Retained earnings, December 31, 2018    $430,000

Net loss                                                        -368,000

Dividends paid                                             -168,000

Retained earnings, December 31, 2019  ($106,000)

3. Stockholders' Equity, December 31, 2019:

Common stock—$15 par value, 100,000 shares authorized,

45,000 shares issued and outstanding                  $ 675,000

Paid-in capital in excess of par value, common stock 67,750

Retained earnings                                                    ($106,000)

Total stockholders' equity                                       $ 636,750

Explanation:

a) Data and Calculations:

Stockholders' Equity (December 31, 2018)

Common stock—$15 par value, 100,000 shares authorized,

45,000 shares issued and outstanding                  $ 675,000

Paid-in capital in excess of par value, common stock 70,000-30,000+20,250+7,500 = 67,750

Retained earnings                                                       430,000

Total stockholders' equity                                      $ 1,175,000

Transaction Analysis:

Jan. 2 Treasury stock $90,000 Paid-in Capital in Excess $30,000 Cash $120,000 purchase of 6,000 shares of its own stock at $20 cash per share.

Jan. 5 Cash Dividend $78,000 Dividend Payable $78,000

a $2 per share cash dividend payable on 39,000 (45,000 - 6,000) shares  

Feb. 28 Dividend Payable $78,000 Cash $78,000

July 6 Cash $54,000 Treasury stock $33,750 Paid-in Capital in Excess $20,250  2,250 of its treasury shares at $24 cash per share.

Aug. 22 Cash Dividend $90,000 Dividend Payable $90,000

$2 per share cash dividend payable on October 28 to the September 25 stockholders of record.

Sept 5 Cash $63,750 Treasury stock $56,250 Paid-in Capital in Excess $7,500   3,750 of its treasury shares at $17 cash per share.

Oct. 28 Dividend Payable $90,000 Cash $90,000

Dec. 31 Retained earnings $368,000 Income Summary $368,000

Dec. 31 Retained earnings $168,000 Cash Dividend $168,000

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