QuestionMorrow Enterprises Inc. manufactures bathroom fixtures. The stockholders equity accounts of Morrow Enterprises Inc., with balances on January 1, 2014, are as follows: Common Stock, $20 stated value (500,000 sharesauthorized, 375,000 shares issued). . . . . . . . . . . . . . . . . . . . . . . . . $7,500,000Paid-In Capital in Excess of Stated ValueCommon Stock. . . . . . . 825,000Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33,600,000Treasury Stock (25,000 shares, at cost) . . . . . . . . . . . . . . . . . . . . . . 450,000The 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.June 6. Sold all of the treasury stock for $26 per share.July 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.Instructions1. Enter the January 1 balances in T accounts for the stockholders equity accounts listed.Also prepare T accounts for the following: Paid-In Capital from Sale of Treasury Stock; Stock Dividends Distributable; Stock Dividends; Cash Dividends.2. Journalize the entries to record the transactions, and post to the eight selected accounts.3. Prepare a retained earnings statement for the year ended December 31, 2014.4. Prepare the Stockholders Equity section of the December 31, 2014, balance sheet.

Solution

1., 2.Common StockTreasury StockJan. 1 Bal.7,500,000Jan. 1 Bal.450,000June 6450,000Apr. 101,500,000Nov. 23570,000Aug. 15360,000Dec. 31 Bal.570,000Dec. 31 Bal.9,360,000

Paid-In Capital from Sale of Treasury StockPaid-In Capital in Excess of Stated ValueJune 6200,000Jan. 1 Bal.825,000Dec. 31 Bal.200,000Apr. 10300,000July 590,000Stock Dividends DistributableDec. 31 Bal.1,215,000Aug. 15360,000July 5360,000Dec. 31 Bal.0

Retained EarningsStock DividendsDec. 31493,800Jan. 1 Bal.33,600,000July 5450,000Dec. 31450,000Dec. 311,125,000Dec. 31 Bal.0Dec. 31 Bal.34,231,200Cash DividendsDec. 2843,800Dec. 3143,800Dec. 31 Bal.0

2.Jan. 22Cash Dividends Payable28,000CashCash46,800Cash DividendsCash Dividends PayableApr. 10Cash1,800,000Common StockCommon Stock1,500,000Income SummaryPaid-In Capital in Excess of Stated Value300,000Paid-In Capital from Sale of Treasury StockPaid-In Capital in Excess of Stated ValueJune 6Cash650,000Retained EarningsTreasury Stock450,000Stock DividendsPaid-In Capital from Sale of Treasury Stock200,000Stock Dividends DistributableTreasury StockJuly 5Stock Dividends450,000Stock Dividends Distributable360,000Paid-In Capital in Excess of Stated Value90,000

Aug. 15Stock Dividends Distributable360,000Common Stock360,000

Nov. 23Treasury Stock570,000Cash570,000

Dec. 28Cash Dividends43,800Cash Dividends Payable43,800

31Income Summary1,125,000Retained Earnings1,125,000

31Retained Earnings493,800Stock Dividends450,000Cash Dividends43,800

3.MORROW ENTERPRISES INC.Retained Earnings StatementFor the Period Ended December 31, 2014

Retained earnings (January 1, 2014)$33,600,000Net income$1,125,000Less: Cash dividends(43,800) Stock dividends(450,000)Increase in retained earnings631,200Retained earnings (December 31, 2014)$34,231,200

4.MORROW ENTERPRISES INC.Balance SheetDecember 31, 2014

Stockholders' EquityPaid-in capital:Common stock, $20 stated value (500,000 shares authorized, 468,000 shares issued)$9,360,000Excess of issue price over stated value1,215,000From sale of treasury stock200,000 Total paid-in capital$10,775,000Retained earnings34,231,200 Total $45,006,200Deduct treasury stock (30,000 shares at cost)570,000Total stockholders' equity$44,436,200