Morrow Enterprises Inc. manufactures bathroom fixtures. The stockholders’ equity accounts of Morrow Enterprises Inc.

Morrow 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 shares
authorized, 375,000 shares issued). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,500,000
Paid-In Capital in Excess of Stated Value—Common Stock. . . . . . . . . . . . . 825,000
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,600,000
Treasury Stock (25,000 shares, at cost). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000


The 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.

Instructions

1. 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.


Answers:

1. and 2.
Common Stock
Jan. 1 Bal. 7,500,000
Apr. 10 1,500,000
Aug. 15 360,000
Dec. 31 Bal. 9,360,000
Paid-In Capital in Excess of Stated Value—Common Stock
Jan. 1 Bal. 825,000
Apr. 10 300,000
July 5 90,000
Dec. 31 Bal. 1,215,000
Retained Earnings
Dec. 31 493,800 Jan. 1 Bal. 33,600,000
Dec. 31 1,125,000
Dec. 31 Bal. 34,231,200
Treasury Stock
Jan. 1 Bal. 450,000 June 6
Nov. 23 570,000
Dec. 31 Bal. 570,000
450,000
Paid-In Capital from Sale of Treasury Stock
June 6 200,000
Stock Dividends Distributable
Aug. 15 360,000 July 5 360,000
Stock Dividends
July 5 450,000 Dec. 31 450,000
Cash Dividends
Dec. 28 43,800 Dec. 31 43,800


2.
Jan. 22 Cash Dividends Payable [(375,000 shares – 25,000 shares) × $0.08] 28,000
Cash 28,000
Apr. 10 Cash (75,000 shares × $24) 1,800,000
Common Stock (75,000 shares × $20) 1,500,000
Paid-In Capital in Excess of Stated Value—Common Stock 300,000
[75,000 shares × ($24 – $20)]
June 6 Cash (25,000 shares × $26) 650,000
Treasury Stock (25,000 shares × $18) 450,000
Paid-In Capital from Sale of Treasury Stock 200,000
[25,000 shares × ($26 – $18)]
July 5 Stock Dividends [(375,000 shares + 75,000 shares) × 4% × $25] 450,000
Stock Dividends Distributable (18,000 shares × $20) 360,000
Paid-In Capital in Excess of Stated Value—Common Stock 90,000
[18,000 shares × ($25 – $20)]
Aug. 15 Stock Dividends Distributable 360,000
Common Stock 360,000
Nov. 23 Treasury Stock (30,000 shares × $19) 570,000
Cash 570,000
Dec. 28 Cash Dividends [(375,000 shares + 75,000 shares + 18,000 shares – 43,800
30,000 shares) × $0.10]
Cash Dividends Payable 43,800
31 Income Summary 1,125,000
Retained Earnings 1,125,000
31 Retained Earnings 493,800
Stock Dividends 450,000
Cash Dividends 43,800



3.
MORROW ENTERPRISES INC.
Retained Earnings Statement
For the Year Ended December 31, 2014
Retained earnings, January 1, 2014 $33,600,000
Net income $1,125,000
Less: Cash dividends (43,800)
Stock dividends (450,000)
Increase in retained earnings 631,200
Retained earnings, December 31, 2014 $34,231,200
4.
Stockholders’ Equity
Paid-in capital:
Common stock, $20 stated value (500,000 shares
authorized, 468,000 shares issued) $9,360,000
Excess of issue price over stated value 1,215,000
From sale of treasury stock 200,000
Total paid-in capital $10,775,000
Retained earnings 34,231,200
Total $45,006,200
Deduct treasury stock (30,000 shares at cost) 570,000
Total stockholders’ equity $44,436,200