The balance sheet of Consolidated Paper, Inc., included the following shareholde

Question

The balance sheet of Consolidated Paper, Inc., included the following shareholders’ equity accounts at December 31, 2017: Paid-in capital: Preferred stock, 8.8%, 95,000 shares at $1 par $ 95,000 Common stock, 454,500 shares at $1 par 454,500 Paid-in capital—excess of par, preferred 1,565,000 Paid-in capital—excess of par, common 2,615,000 Retained earnings 9,445,000 Treasury stock, at cost; 4,500 common shares (49,500 ) Total shareholders' equity $ 14,125,000 During 2018, several events and transactions affected the retained earnings of Consolidated Paper. Required: 1. Prepare the appropriate entries for these events. On March 3 the board of directors declared a property dividend of 275,000 shares of Leasco International common stock that Consolidated Paper had purchased in January as an investment (book value: $800,000). The investment shares had a fair value of $3 per share and were distributed March 31 to shareholders of record March 15. On May 3 a 5-for-4 stock split was declared and distributed. The stock split was effected in the form of a 25% stock dividend. The market value of the $1 par common stock was $11 per share. On July 5 a 3% common stock dividend was declared and distributed. The market value of the common stock was $11 per share. On December 1 the board of directors declared the 8.8% cash dividend on the 95,000 preferred shares, payable on December 28 to shareholders of record December 20. On December 1 the board of directors declared a cash dividend of $0.40 per share on its common shares, payable on December 28 to shareholders of record December 20. 2. Prepare the shareholders' equity section of the balance sheet for Consolidated Paper, Inc., at December 31, 2018. Net income for the year was $850,000.

Explanation / Answer

Requirement 1:

In the books of Consolidated Paper Inc. :

Requirement 2:

Consolidated Paper Inc.

Balance Sheet ( Partial)

December 31, 2018

Date Account Titles Debit Credit 2018 $ $ March 3 Investment in Leasco International 25,000 Gain on revaluation of investment [( 275,000 x $ 3) - $ 800,000 ] 25,000 March 3 Retained Earnings 825,000 Property Dividend Payable 825,000 March 15 No entry required March 31 Property Dividend Payable 825,000 Investment in Leasco International 825,000 May 3 Retained Earnings [( 454,500 - 4,500) ] x 25% x $ 1 112,500 Common Stock 112,500 July 5 Retained Earnings [ 450,000 + 112,500 x 3%] x $ 11 185,625 Common Stock 16,875 Paid-in Capital in Excess of Par: Common 168,750 December 1 Retained Earnings 8,360 Dividends Payable: Preferred Stock 8,360 December 1 Retained Earnings (450,000 + 112,500 + 16,875) x $ 0.40 231,750 Dividends Payable : Common Stock 231,750 December 20 No entry required December 28 Dividends Payable: Preferred Stock 8,360 Dividends Payable: Common Stock 231,750 Cash 240,110 December 31 Income Summary 850,000 Retained Earnings 850,000

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