Morrow Enterprises Inc. manufactures bathroom fixtures. The stockholders’ equity
ID: 2450957 • Letter: M
Question
Morrow Enterprises Inc. manufactures bathroom fixtures. The stockholders’ equity accounts of Morrow Enterprises Inc., with balances on January 1, 2016, are as follows: Common Stock, $20 stated value (500,000 shares authorized, 375,000 shares issued) $ 7,500,000 Paid-In Capital in Excess of Stated Value—Common Stock 825,000 Retained Earnings 33,600,000 Treasury Stock (25,000 shares, at cost) 450,000 The following selected transactions occurred during the year: Jan. 22 Paid cash dividends of $0.08 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $28,000. Apr. 10 Issued 75,000 shares of common stock for $24 per share. Jun. 6 Sold all of the treasury stock for $26 per share. Jul. 5 Declared a 4% stock dividend on common stock, to be capitalized at the market price of the stock, which is $25 per share. Aug. 15 Issued the certificates for the dividend declared on July 5. Nov. 23 Purchased 30,000 shares of treasury stock for $19 per share. Dec. 28 Declared a $0.10-per-share dividend on common stock. 31 Closed the credit balance of the income summary account, $1,125,000. 31 Closed the two dividends accounts to Retained Earnings. Required: A. Enter the January 1 balances in T accounts for the stockholders’ equity accounts listed. B. Journalize the entries to record the transactions, and post to the eight selected accounts. No post ref is required in the journal. Refer to the Chart of Accounts for exact wording of account titles. C. Prepare a retained earnings statement for the year ended December 31, 2016. Enter all amounts as positive numbers. The word “Less” is not required.* D. Prepare the Stockholders’ Equity section of the December 31, 2016, balance sheet. “Less” or “Deduct” will automatically appear if it is required. * * Refer to the list of Amount Descriptions provided for the exact wording of the answer choices for text entries.
Explanation / Answer
A Common Stock, $20 stated value $ 7,500,000.00 (500,000 shares authorized, 375,000 shares issued) Paid-In Capital in Excess of Stated Value—Common Stock $ 825,000.00 retained Earnings $ 33,600,000.00 Treasury Stock (25,000 shares, at cost) $ 450,000.00 B Jan. 22 Paid cash dividends of $0.08 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $28,000. Dividend Payable A/c Dr $ 28,000.00 To Cash $ 28,000.00 Apr. 10 Issued 75,000 shares of common stock for $24 per share Cash A/c Dr $ 1,800,000.00 To Common Stock $ 1,500,000.00 [75000*$20] To Paid in Capital in excess of stock $ 300,000.00 [75000*$4] Jun. 6 Sold all of the treasury stock for $26 per share. Cash A/c $ 650,000.00 [25000*$26] Additional Paid in capital from Treasury Stock $ 200,000.00 [25000*$8] Treasury Stock $ 450,000.00 [25000*$18] Jul. 5 Declared a 4% stock dividend on common stock, to be capitalized at the market price of the stock, which is $25 per share No of shares Outstanding = 375000 shares opening -25000 + 75000 shares issued +25000 = 450000 shares Stock Dividend (450000 shares *4% X $25) $ 450,000.00 Common Stock Dividends Distributable (450000 shares *4% X $20) $ 360,000.00 Paid-in Capital in Excess of Par Value—Common Stock (450000 shares *4% X $5) $ 90,000.00 Aug. 15 Issued the certificates for the dividend declared on July 5. Common Stock Dividends Distributable (450000 shares *4% X $20) $ 360,000.00 [18000 shares*$20] To Common Stock $ 360,000.00 Nov. 23 Purchased 30,000 shares of treasury stock for $19 per share Treasury Stock A/c Dr $ 570,000.00 [30000 shares*$19] To Cash $ 570,000.00 [30000 shares*$19] Dec. 28 Declared a $0.10-per-share dividend on common stock 375,000 - 25,000 + 75,000 + 35,000 +18,000 - 30,000 = 438,000 shares now outstanding Cash Dividend A/c Dr $ 43,800.00 [438000 shares*$0.10] To Common Dividend Payable $ 43,800.00 31 Closed the credit balance of the income summary account, $1,125,000. Income Summary A/c Dr $ 1,125,000.00 To retained Earnings $ 1,125,000.00 31 Closed the two dividends accounts to Retained Earnings. Retained Earnings A/c Dr $ 450,000.00 To Stock Dividend $ 450,000.00 Retained Earnings A/c Dr $ 43,800.00 To Cash Dividend $ 43,800.00 3 C. Prepare a retained earnings statement for the year ended December 31, 2016 Opening Balance of Retained Earnings $ 33,600,000.00 Add: Income Earned during the year $ 1,125,000.00 less: Stock dividend distributed $ (450,000.00) less: CAshdividend distributed $ (43,800.00) $ 34,231,200.00
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