Question

Kohler Corporation reports the following components of stockholders’ equity at December 31, 2018. 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 During 2019, the following transactions affected its stockholders’ equity accounts. Jan. 2 Purchased 4,500 shares of its own stock at $25 cash per share. Jan. 5 Directors declared a $2 per share cash dividend payable on February 28 to the February 5 stockholders of record. Feb. 28 Paid the dividend declared on January 5. July 6 Sold 1,688 of its treasury shares at $29 cash per share. Required: 1. Prepare journal entries to record each of these transactions.

Answer 1

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.