Paid-ln Capital: Common Stock—$10 Par Value; 350,000 shares authorized, 30,000 shares issued and outstanding : $300,000
Paid-ln Capital in Excess of Par—Common 310,000
Total Paid-ln Capital 610,000
Retained Earnings 161,000
Total Stockholders' Equity 771,000

Feb 6. Declared a 5% stock dividend on common stock. The market value of Patrick's stock was $27 per share.
15 Distributed the stock dividend.
Jul 29 Purchased 1 , 700 shares of treasury stock at $27 per share.
Nov. 27 Declared a $0. 10 per share cash dividend on the common stock outstanding.

Requirements

a. Record the transactions in the general journal.
b. Prepare a retained earnings statement for the year ended December31, 2016. Assume Fleck's net income for the year was $85,000.
c. Prepare the stockholders' equity section of the balance sheet at December 31,2016.

a. General Journal:

Date     Description                            Debit            Credit

Feb. 6  

Stock Dividend (Retained earnings) $15,000

Stock Dividend Payable                                         $15,000

To record the declaration of 5% stock dividend or new 1,500 shares

Feb. 15

Stock Dividends Payable                 $15,000

Common Stock                                                     $15,000

To record the distribution of the stock dividend

July 29:

Treasury Stock                                $17,000

Paid-in Capital in Excess of Par    $28,900

Cash Account                                                      $45,900

To record the repurchase of 1,700 shares of treasury stock at $27 each.

Nov. 27:

Cash Dividend                                $2,980

Dividend Payable                                                 $2,980

To record the declaration of a $0.10 per share cash dividend on 29,800 common stock shares outstanding

b. Retained Earnings Statement for the year ended December 31, 2016:

Retained Earnings b/f       $161,000

Dividends (stock)                 (15,000)

Dividends (cash)                   (2,980)

Ending balance                

c. Stockholders' Equity Section of the Balance Sheet at December 31, 2016:

Paid-in Capital:

Common Stock—$10 Par Value; 350,000 shares

authorized, 31,500 shares issued and outstanding :  $315,000

Treasury Stock, 1,700 shares                                           (17,000)

Paid-ln Capital in Excess of Par—Common                    281,100

Total Paid-in Capital                                                        579,100

Retained Earnings                                                          143,020

Total Stockholders' Equity                                          $722,120

Explanation:

a) Stock Dividend:  5% of stock outstanding was 1,500 (30,000 x 5%).  The effect of the stock dividend is to increase the Common Stock shares from 30,000 to 31,500 shares.  This is also reflected in the Common Stock account at the par value of $10, totalling $15,000 (1,500 x $10).  This is because the market value of $27 per share does not involve any cash flows for the entity, but an inflow for the stockholders who decide to sell their shares at that point.  The Retained Earnings is also reduced by $15,000, just as it is in the case of cash dividend.

b) Paid-in Capital in Excess of Par:

beginning balance     $310,000

Treasury stock             (28,900)

ending balance          $281,100

This account reflects the changes in Treasury stock above and below the par values.  It is also used to record the above and below the par values when shares are issued.

c) Treasury Stock:  This is a contra account to the Common Stock.  It records the repurchase of entity's own stock.  Two methods are allowed for accounting for treasury stock.  One is the par value method, where the differences in par value are recorded in the Paid-in Capital in Excess of Par.  The other method is the costing method, where the differences in par value are recorded in the Treasury stock account.