On January 1, 2012, Kristen Corporation had the following stockholders\' equity

Question

On January 1, 2012, Kristen Corporation had the following stockholders' equity accounts. Common Stock ($20 par value, 60,000 shares issued and outstanding) 1,200,000 Paid-in Capital in Excess of Par- Common Stock 200,000 Retained Earnings 600,000 During the year, the following transactions occurred. Feb 1 Declared a $1 cash dividend per share to stockholders of record on February 15, payable March 1. Mar 1 Paid the dividend declared in February. Apr 1 Announced a 2-for-1 stock split. Prior to the split, the market price per share was $36. July 1 Declared a 10% stock dividend to stockholders of record on July 15, distributable July 31. On July 1, the market price of the stock was $13 per share. July 31 Issued the shares for the stock dividend Dec 1 Declared a $0.50 per share dividend to stockholders of record on Dec 15, payable Jan 5, 2013. Dec 31 Determined that net income for the year was $350,000. Instructions A. Journalize the transactions and the closing entry for net income. B. Enter the beginning balances, and post the entries to the stockholders' equity accounts. (Note: Open additional stockholders' equity accounts as needed.) C. Prepare a stockholders' equity section at Dec 31.

Explanation / Answer

a Feb. 1 Retained Earnings (60,000 X $1)= 60,000 Dividends Payable=60,000 Mar. 1 Dividends Payable= 60,000 Cash=60,000 Apr. 1 Memo—two-for-one stock split increases number of shares to 120,000 = (60,000 X 2) and reduces par value to $10 per share July 1 Retained Earnings (12,000 X $13)=156,000 Common Stock Dividends Distributable (12,000 X $10)=120,000 Paid-in Capital in Excess of Par Value (12,000 X $3)=36,000 31 Common Stock Dividends Distributable=120,000 Common Stock=120,000 Dec.1 Retained Earnings (132,000 X $.50)=66,000 Dividends Payable=66,000 31 Income Summary=350,000 Retained Earnings=350,000 ------------------------------------------------------------------------------------------------ (b) Common Stock ---------------------------------------------------------------------------------------------------- Date Explanation Ref. Debit Credit Balance ----------------------------------------------------------------------------------------------------- Jan. 1 120000 Apr. 1 2 for 1 split—new par $10 July 31 Balance 120,000 1,320,000 Common Stock Dividends Distributable ---------------------------------------------------------------------------------------------------- Date Explanation Ref. Debit Credit Balance ------------------------------------------------------------------------------------------------- July 1 120,000 120,000 31 120,000 0 Paid-in Capital in Excess of Par Value ------------------------------------------------------------------------------------------------ Date Explanation Ref. Debit Credit Balance ------------------------------------------------------------------------------------------------------ Jan. 1 Balance 200,000 July 1 36,000 236,000 Retained Earnings ------------------------------------------------------------------------------------------------------- Date Explanation Ref. Debit Credit Balance ------------------------------------------------------------------------------------------------------- Jan. 1 Balance 600000 Feb. 1 Cash dividend 60,000 540000 July 1 Stock dividend 156,000 384,000 Dec. 1 Cash dividend 66,000 318,000 31 Net income 350000 668,000 (c) Kristen Corporation Balance Sheet (Partial) December 31, 2010 Stockholders’ equity Capital stock and Common stock, $10 par value, 132,000 shares issued and outstanding=$1,320,000 Additional paid-in capital In excess of par value=236,000 Total paid-in capital=1,556,000 Retained earnings=668,000 Total stockholders’ equity=$2,224,000

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