Question

On January 1, 2020, Cullumber Company had the following stockholders' equity accounts.

Common Stock ($10 par value, 75,000 shares issued and outstanding) $750,000
Paid-in Capital in Excess of Par-Common Stock 180,000
Retained Earnings 500,000

During the year, the following transactions occurred.

Jan. 15 Declared a $1.00 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 5% stock dividend to stockholders of record on April 30, distributable
May 15. On April 15, the market price of the stock was $15 per share.
May 15 Issued the shares for the stock dividend.
July 1 Announced a 2-for-1 stock split. The market price per share prior to the announcement was $13. (The new par value is $5.)
Dec. 1 Declared a $0.40 per share cash dividend to stockholders of record on December 15, payable January 10, 2021.
Dec. 31 Determined that net income for the year was $200,000.

Required:
Journalize the transactions and the closing entries for net income and dividends.

Answer 1

Answer:

Cullumber Company

Journal Entries:

Jan. 15 Debit Cash Dividends $75,000

Credit Dividends payable $75,000

To record the declaration of $1.00 per 75,000 shares.

Feb. 15 Debit Dividends payable $75,000

Credit Cash $75,000

To record the payment of dividends.

Apr. 15 Debit Stock Dividends $37,500

Credit Stock Dividends payable $37,500

To record the declaration of 5% stock dividends on 75,000 shares.

May 15 Debit Stock Dividends payable $37,500

Credit Common stock $37,500

To record the issuance of stock for dividends.

July 1 Stock split (2-for-1) 75,000 shares No financial entry

Dec. 1 Debit Cash Dividends $60,000

Credit Dividends payable $60,000

To record the declaration of cash dividends of $0.40 on 150,000 shares.

Dec. 31 Debit Net income $200,000

Credit Retained earnings $200,000

To close net income to retained earnings.

Debit Retained Earnings $167,500

Credit Cash Dividends $130,000

Credit Stock Dividends $37,500

To close the dividends accounts to retained earnings.

Explanation:

a) Data and Analysis:

Common stock ($10 par value, 75,000 shares

 issued and outstanding)                                  $750,000

Paid-in Capital in Excess of Par-Common Stock 180,000

Retained Earnings                                               500,000

Jan. 15 Retained earnings (Cash Dividends) $75,000 Dividends payable $75,000 ($1.00 * 75,000)

Feb. 15 Dividends payable $75,000 Cash $75,000

Apr. 15 Retained earnings (Stock Dividends) $37,500 Stock Dividends payable $37,500 (75,000 * 5%)

May 15 Stock Dividends payable $37,500 Common stock $37,500

July 1 Stock split (2-for-1) 75,000 shares No financial entry

Dec. 1 Retained earnings (Cash Dividends) $60,000 Dividends payable $60,000 ($0.40 * 150,000)

Dec. 31 Net income $200,000 Retained earnings $200,000