Answer:
Knapp Industries
a. Journal Entries:
January 1, 2018: Debit Cash $27,600,000
Credit Common stock $2,400,000
Credit Additional Paid-in Capital $25,200,000
To record the issuance of 1,200,000 shares of $2 par for $23 per share.
June 30: Debit Cash Dividends $2,100,000
Credit Dividends Payable $2,100,000
To record the declaration of $1.75 per share dividend.
August 30: Debit Dividends Payable $2,100,000
Credit Cash $2,100,000
To record the payment of dividends.
November 1: Debit Treasury stock $480,000
Debit Additional Paid-in Capital $6,240,000
Credit Cash $6,720,000
To record the repurchase of 240,000 treasury stock shares at $28 per share.
December 22: Debit Cash $4,080,000
Credit Treasury stock $240,000
Credit Additional Paid-in Capital $3,840,000
To record the resale of 120,000 treasury stock shares at $38 per share.
b. Stockholders' Equity Section of the Balance Sheet as of December 31, 2018:
Authorized share capital:
1,200,000 shares of Common stock at $2 par
Issued and Outstanding shares:
Common stock, 1,200,000 shares at $2 par $2,400,000
Treasury stock, 120,000 shares at $2 par (240,000)
Outstanding shares, 1,080,000 shares $1,080,000
Additional Paid-in Capital ($25.2 - $6.24 + $3.84) 22,800,000
Retained earnings 2,400,000
Total equity $26,280,000
Explanation:
a) Data and Analysis:
January 1, 2018:
Cash $27,600,000 Common stock $2,400,000 Additional Paid-in Capital $25,200,000
Issuance of 1,200,000 shares of $2 par for $23 per share.
June 30: Cash Dividends $2,100,000 Dividends Payable $2,100,000
August 30: Dividends Payable $2,100,000 Cash $2,100,000
November 1: Treasury stock $480,000 Additional Paid-in Capital $6,240,000 Cash $6,720,000
December 22: Cash $4,080,000 Treasury stock $240,000 Additional Paid-in Capital $3,840,000
Retained Earnings:
Net income for the year = $4,500,000
Dividends paid = (2,100,000)
Retained earnings, dec. 31 $2,400,000
