On January 1, 2010, Werth Corporation had these stockholders\' equity accounts.

Question

On January 1, 2010, Werth Corporation had these stockholders' equity accounts.


Common Stock ($10 par value, 80,000 shares issued and outstanding) $800,000
Paid-in Capital in Excess of Par Value 500,000
Retained Earnings 620,000


During the year, the following transactions occurred.

Jan. 15 Declared a $0.50 cash dividend per share to stockholders of record on January 31, payable February 15.
Feb. 15 Paid the dividend declared in January.
Apr. 15 Declared a 10% stock dividend to stockholders of record on April 30, distributable May 15. On April 15 the market price of the stock was $14 per share.
May 15 Issued the shares for the stock dividend.
Dec. 1 Declared a $0.55 per share dividend to stockholders of record on December 15, payable January 10, 2011.
Dec. 31 Determined that net income for the year was $400,000.






Journalize the transactions. (Include entries to close net income to Retained Earnings.) (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

Date Account/Description Debit Credit
Jan. 15 Dividends PayableCommon StockPaid-in Capital in Excess of Par ValueCommon Stock Dividends DistributableCash dividendsIncome SummaryStock dividendsRetained EarningsCash
Common StockCash dividendsPaid-in Capital in Excess of Par ValueCommon Stock Dividends DistributableIncome SummaryStock dividendsDividends PayableCashRetained Earnings
Feb. 15 Common StockCash dividendsCashPaid-in Capital in Excess of Par ValueIncome SummaryDividends PayableRetained EarningsCommon Stock Dividends DistributableStock dividends
Common Stock Dividends DistributableCommon StockIncome SummaryCash dividendsStock dividendsDividends PayableRetained EarningsPaid-in Capital in Excess of Par ValueCash
Apr.15 Paid-in Capital in Excess of Par ValueCommon StockCash dividendsCommon Stock Dividends DistributableIncome SummaryRetained EarningsStock dividendsCashDividends Payable
Stock dividendsIncome SummaryCommon Stock Dividends DistributableCashDividends PayableRetained EarningsCommon StockPaid-in Capital in Excess of Par ValueCash dividends
Paid-in Capital in Excess of Par ValueCommon Stock Dividends DistributableCashDividends PayableCash dividendsRetained EarningsCommon StockIncome SummaryStock dividends
May 15 Income SummaryDividends PayableCommon StockPaid-in Capital in Excess of Par ValueCash dividendsCommon Stock Dividends DistributableStock dividendsCashRetained Earnings
Common Stock Dividends DistributableIncome SummaryCashCommon StockCash dividendsDividends PayableRetained EarningsPaid-in Capital in Excess of Par ValueStock dividends
Dec. 1 Income SummaryDividends PayableRetained EarningsCommon Stock Dividends DistributableStock dividendsPaid-in Capital in Excess of Par ValueCashCash dividendsCommon Stock
Common StockDividends PayableCashStock dividendsRetained EarningsPaid-in Capital in Excess of Par ValueIncome SummaryCommon Stock Dividends DistributableCash dividends
Dec. 31 Stock dividendsRetained EarningsCashCommon StockIncome SummaryCommon Stock Dividends DistributableCash dividendsPaid-in Capital in Excess of Par ValueDividends Payable
Retained EarningsDividends PayableCommon StockCash dividendsPaid-in Capital in Excess of Par ValueCashCommon Stock Dividends DistributableIncome SummaryStock dividends
(To close net income to retained earnings.)
Dec. 31 Stock dividendsRetained EarningsCash dividendsDividends PayableIncome SummaryCommon Stock Dividends DistributableCashCommon StockPaid-in Capital in Excess of Par Value
CashDividends PayablePaid-in Capital in Excess of Par ValueCommon StockStock dividendsCommon Stock Dividends DistributableIncome SummaryCash dividendsRetained Earnings
(To close stock dividends to retained earnings.)
Dec. 31 Retained EarningsIncome SummaryCashCash dividendsPaid-in Capital in Excess of Par ValueDividends PayableCommon StockCommon Stock Dividends DistributableStock dividends
Retained EarningsCommon Stock Dividends DistributableCashStock dividendsCash dividendsCommon StockIncome SummaryPaid-in Capital in Excess of Par ValueDividends Payable
(To close cash dividends to retained earnings.)







Enter the beginning balances and post the entries to the stockholders' equity T accounts. (If answer is zero please enter 0, do not leave any fields blank.)

Common Stock Retained Earnings
1/1 Bal. 1/1 Bal. 12/31 1/1 Bal.
5/15
5/15

12/31
12/31


12/31 Bal. 12/31 Bal. 12/31 Bal. 12/31 Bal.

Paid-in Capital in Excess of Par Value
Common Stock Dividends Distributable

1/1 Bal. 1/1 Bal. 5/15
4/15


4/15
4/15

12/31 Bal. 12/31 Bal.
12/31 Bal. 12/31 Bal.

Cash Dividends
Stock Dividends

1/15 1/15 4/15 4/15
12/1
12/31

12/31
12/31


12/31 Bal. 12/31 Bal. 12/31 Bal. 12/31 Bal.







Prepare the stockholders' equity section of the balance sheet at December 31.

WERTH CORPORATION
Partial Balance Sheet
December 31, 2010

Stockholders

Explanation / Answer

Jan. 15 Declared a $0.50 cash dividend per share to stockholders of record on January 31, payable February 15 Dr Cash Dividend 40,000 (80,000 shares x $0.50) Cr Dividend payable 40,000 Feb. 15 Paid the dividend declared in January Dr Dividend payable 40,000 Cr Cash 40,000 Apr. 15 Declared a 10% stock dividend to stockholders of record on April 30, distributable May 15. On April 15 the market price of the stock was $14 per share Dr Retained earnings 112,000 (80,000 x 10% x $14) Cr Common stock distributable 80,000 (8,000 x $10) Cr Paid-in Capital in Excess of Par Value 32,000 May 15 Issued the shares for the stock dividend Dr Common stock distributable 80,000 Cr Common stock 80,000 There are now 88,000 common shares outstanding Dec. 1 Declared a $0.55 per share dividend to stockholders of record on December 15, payable January 10, 2011 Dr Cash dividend 48,400 (88,000 shares x $0.55) Cr Dividend payable 48,400 Dec. 31 Determined that net income for the year was $400,000 Dr Income summary 400,000 Cr Retained earnings 400,000 Dr Retained earnings 200,400 Cr Cash dividends 88,400 Cr Stock dividend 112,000 Prepare the stockholders' equity section of the balance sheet at December 31 Common Stock ($10 par value, 88,000 shares issued and outstanding) $880,000 Paid-in Capital in Excess of Par Value 532,000 Retained Earnings 819,600 Total $2,231,600 Payout ratio = Cash dividends/Net income = 88,400/400,000 = 22.1% Return on common stockholders' equity = Net income/Average common stockholders' equity = 400,000/[(1,920,000 + 2,231,600/2] = 400,000/2,075,800 = 19.3%

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