PROBLEM 2 (6 points) Hertz Corporation reported retained earnings at December 31

Question

PROBLEM 2 (6 points) Hertz Corporation reported retained earnings at December 31, 2016, of $320,000. It had 200,000 shares of common stock outstanding throughout 2017. The following transactions occurred during 2017 +1) Net income was $350,000. A cash dividend of $0.5? per share was declared and paid. 2) -3) A 7% stock dividend was declared and distributed to common stockholders when the market price per share was $16 per shares. 4) A cash dividend of $0.60 per share was declared and paid. Instructions: Prepare a retained earnings statement for 2017.

Explanation / Answer

Solution:

Problem 2 --- Retained Earnings Statement

Hart Corporation

Statement of Retained Earnings

For the Year Ended December 31, 2017

$$

Retained earnings, Dec. 31, 2016

$280,000

Add: Net income

$320,000

$600,000

Less: Market Value of Stock Dividend (Refer Note 1)

-$224,000

Less: Cash dividends declared & paid (Refer Note 2)

-$192,000

Retained earnings, Dec. 31, 2017

$184,000

Note 1 --- Number of Shares Issued in Stock Dividend

Outstanding shares before stock dividend

200,000 Shares

Ratio of Stock Dividend

7% of Stock

Number of Shares Issued in Stock Dividend (200,000 Shares x 7%)

14,000 Shares

Market Price Per Share

$16

Value of Stock Dividend (14,000 Shares * MV 16)

$224,000

Total Number of Shares after stock dividend (200,000 Shares + 14,000 Shares)

214,000 Shares

Note 2 - Cash Dividend Declared and Paid

Transaction 2 -- Dividend of $0.40 per share

(0.40*200,000 Shares of common stock)

$80,000

Transaction 4 -- Dividend of $0.50 per share

(0.50*224,000 Shares of common stock Refer note 1)

$112,000

Total Dividend Declared and paid

$192,000

Problem 4 – Journal Entries

Date

Account Titles and Explanation

Debit

Credit

Jan.15

Retained Earnings (120,000 Shares *$2)

$240,000

Cash Dividend Payable

$240,000

(To record declaration of Cash dividend $2 each share)

Jan.31

No Entry is required on Record Date

Feb.12

Cash Dividend Payable

$240,000

Cash

$240,000

( To record cash dividend paid declared on Jan.15)

April.14

Retained Earnings

$201,600

Stock Dividend Distributable

$201,600

(to record declaration of stock dividend 12%)

(Number of Outstanding Shares before stock dividend 120,000 Shares x 12% * Market Price $14)

(Number of Outstanding Shares after stock dividend = 120,000 + 14,400 = 134,400 Shares)

April.30

No Entry is required on Record Date

May.15

Stock Dividend Distributable

$201,600

Common Stock (Number of Shares distributed 14,400 Shares * Par Value $12)

$172,800

Paid in Capital in Excess of Par - Common Stock (Bal fig)

$28,800

July.5

Memorandum: A 3 for 1 stock split increase the number of shares of common stock outstanding from 134,400 Shares to 403,200 Shares and reduced the par value from $12 to $4 per share ($12 par value / 3 stock for 1). The new 268,800 Shares were distributed

Dec.1

Retained Earnings (403,200 Shares *$0.60)

$241,920

Cash Dividend Payable

$241,920

(To record declaration of Cash dividend $0.60 each share)

Dec.15

No Entry is required on Record Date

Dec.31

Income Summary Statement

$210,000

Retained Earnigns

$210,000

(To record closing entry of Income transferred from Income Summary to Retained Earnings)

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Hart Corporation

Statement of Retained Earnings

For the Year Ended December 31, 2017

$$

Retained earnings, Dec. 31, 2016

$280,000

Add: Net income

$320,000

$600,000

Less: Market Value of Stock Dividend (Refer Note 1)

-$224,000

Less: Cash dividends declared & paid (Refer Note 2)

-$192,000

Retained earnings, Dec. 31, 2017

$184,000

Note 1 --- Number of Shares Issued in Stock Dividend

Outstanding shares before stock dividend

200,000 Shares

Ratio of Stock Dividend

7% of Stock

Number of Shares Issued in Stock Dividend (200,000 Shares x 7%)

14,000 Shares

Market Price Per Share

$16

Value of Stock Dividend (14,000 Shares * MV 16)

$224,000

Total Number of Shares after stock dividend (200,000 Shares + 14,000 Shares)

214,000 Shares

Note 2 - Cash Dividend Declared and Paid

Transaction 2 -- Dividend of $0.40 per share

(0.40*200,000 Shares of common stock)

$80,000

Transaction 4 -- Dividend of $0.50 per share

(0.50*224,000 Shares of common stock Refer note 1)

$112,000

Total Dividend Declared and paid

$192,000

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