Rocklin Corportation reports the following components of stockholders\' equity o

Question

Rocklin Corportation reports the following components of stockholders' equity on December 31, 2009

Common Stock--$25 par value, 100,000 shares authorized,
45,000 shares issued and outstanding...............................1,125,000
Paid in Capital in excess of par value, common stock......................60,000
Retained earnings................................................................460,000
Total stockholders equity.....................................................1,645,000

In year 2010, the following transactions affected its stockholder equity accounts.

Jan. 1 purchased 4,500 shares of its own stock at $25 cash per share.
Jan 5 directors declared a $3 per share cash dividend payable onFeb.28 to the Feb.5 stock holders of records.

Feb 28 paid the dividend declared on Jan5.
July 6 sold 1688 of its treasury share at $29 cash per share.
Aug22 Sold 2,812 of its treasury shares at 22 cash per share.
Sept. 5 Directories declared a $3 per share cash dividend payable onoctober 28 to the septmber 25 stock holders of record

oct 28 paid the divedend declared on september 5.
Dec 31 Closed the 388,000 credit balance (from net income) in theincome summary account to retained earnings.

Required
1- prepare a journal entries to record each of these transactions for2010.
2- prepare a statement of retained earnings for the year ended december31,2010.
3-prepare the stockholder's equity section of the company's balancesheet as of december 31,2010

Explanation / Answer

I hope this helps. If you have trouble reading it, chart it out according to the transaction and the accounts to credit (Cr.) and debit (Dr.), I apologize about the tech problem. The treasury stock transactions are completed using the cost method (as opposed to the par-value method) and the First-In, First-Out method. I tried to make clear what is going on by showing the math behind the transaction. However, due to time and the length of discussion that could be involved with this problem , I tried to make this fairly simple. For expanded explanation of what to do, I recommend reading your text. I refer to the Intermediate Accounting 13th ed. textbook, The Problem Solving Survival Guide, class notes, and the FASB Codification for areas I have questions about. If you have the same textbook, I recommend checking out Chapter 4 for the Retained Earnings Statement and Chapter 15 for the other material. If you have access to the codification you can read FASB ASC 505-10-45-2, 505-30-30-10, 505-30-45-1, etc. I cannot guarantee the work, but if there are any errors, I would appreciate any feedback. Good luck on your studying. January 1, 2010 Dr. Treasury Stock (at Cost) 112,500 Cr. Cash 112,500 (40,500 Shares-Common Oustanding) January 5, 2010 Dr. Retained Earnings 121,500 Cr. Dividends Payable 121,500 February 5, 2010 (No Entry/Memo Entry) February 28, 2010 Dr. Dividends Payable 121,500 Cr. Cash 121,500 July 6, 2010 Dr. Cash 48,952 Cr. Treasury Stock (at Cost) 42,200 Cr. Paid-in Capital from Treasury Stock Transactions 6,752 (42,188 Shares-Common Oustanding) August 22, 2010 Dr. Cash 61,864 Dr. Retained Earnings 8,436 Cr. Treasury Stock (at Cost) 70,300 (45,000 Shares-Common Oustanding) September 5, 2010 Dr. Retained Earnings 135,000 Cr. Dividends Payable 135,000 September 25, 2010 (No Entry) October 28, 2010 Dr. Dividends Payable 135,000 Cr. Cash 135,000 December 31, 2010 Dr. Income Summary 388,000 Cr. Retained Earnings 388,000 Retained Earnings Statement For the Year Ended December 31, 2010 Retained Earnings 1/1/2010 460,000 Add: Net Income 388,000 848,000 Less: Cash Dividends (256,500) Less: Cost of Treasury Stock Transactions (8,436) Retained Earnings 12/31/2010 583,064 Stockholder's Equity December 31, 2010 Common Stock, $25 Par, 45,000 Shares Issued/Outstanding 1,125,000 Paid-in Capital in Excess of Par-Common 60,000 Paid-in Capital from Treasury Stock Transactions 6,752 66,752 Total Paid-in Capital 1,191,752 Retained Earnings 583,064 Total Stockholders' Equity 1,774,816

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