Answer:
Kohler Corporation
Journal Entries:
Jan. 2:
Debit Treasury Stock $45,000
Debit Paid-in Capital In Excess of Par $67,500
Credit Cash Account $112,500
To record the purchase of 4,500 shares of its own stock at $25 per share.
Jan. 5:
Debit Dividends $71,000
Credit Dividends Payable $71,000
To record the declaration of $2 per share cash dividend.
Feb. 28:
Debit Dividends Payable $71,000
Credit Cash Account $71,000
To record the payment of cash dividend on 35,500 shares at $2 per share.
July 6:
Debit Cash Account $48,952
Credit Treasury Stock $16,880
Credit Paid-in Capital In Excess of Par $32,072
To record the sale of treasury stock shares at $29 per share.
Explanation:
a) Data and Calculations:
Common stock—$10 par value, 100,000 shares authorized,
40,000 shares issued and outstanding $ 400,000
Paid-in capital in excess of par value,
common stock 60,000
Retained earnings 460,000
Total stockholders' equity $ 920,000
b) The purchase on Jan. 2 of its own stock of 4,500 shares, the cash receipt is credited to the Cash Account while the Treasury Stock is debited, but only with the par value of the repurchased shares if the par value method is adopted. If the costing method is adopted, the value to be debited to the Treasury Stock account would have $112,500 without any debit to the Paid-in Capital In Excess of Par. This is also followed when the sale of 1,688 treasury shares at $29 per share takes place on July 6, but with opposite entries.
c) To compute the dividend payable, the treasury stock shares of 4,500 are deducted from the outstanding shares of 40,000. This means that the shareholders of record have shares outstanding totalling 35,500 (40,000 - 4,500).
d) The general journal is used in these cases to record the transactions initially in the books of Kohler Corporation. They show the accounts to be debited and the others to be credited, since two accounts or more are usually involved in any business transaction.
