Question

Exercise 18-23 (Algo) Transactions affecting retained earnings [LO18-6, 18-7, 18-8] The balance sheet of Consolidated Paper, Inc., included the following shareholders’ equity accounts at December 31, 2020: Paid-in capital: Preferred stock, 7.0%, 91,000 shares at $1 par $ 91,000 Common stock, 414,100 shares at $1 par 414,100 Paid-in capital—excess of par, preferred 1,525,000 Paid-in capital—excess of par, common 2,575,000 Retained earnings 9,045,000 Treasury stock, at cost; 4,100 common shares (41,000 ) Total shareholders' equity $ 13,609,100 During 2021, 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 255,000 shares of Leasco International common stock that Consolidated Paper had purchased in January as an investment (book value: $744,000). 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 $10 per share. On July 5, a 1% common stock dividend was declared and distributed. The market value of the common stock was $10 per share. On December 1, the board of directors declared the 7.0% cash dividend on the 91,000 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, 2021. Net income for the year was $800,000.

Record any necessary adjustments to the Equity securities account as a result of the property dividend declaration.
Record the declaration of the property dividend.
Record the entry on the date of record.
Record the distribution of the property dividend.
Record the declaration and distribution of the stock split effected in the form of a stock dividend.
Record the declaration and distribution of the stock dividend.
Record entry for cash dividend on preferred stock on date of declaration.
Record the entry on the date of record.
Record the payment of cash dividends to preferred shareholders.
Record the declaration of cash dividends to common shareholders.
Record the entry on the date of record.
Record the payment of cash dividends to common shareholders

Answer 1

To record a property dividend, adjustments are made to the Equity securities account and Retained Earnings. The declaration of the property dividend is recorded by debiting Retained Earnings and crediting Property Dividend Payable. The distribution of the property dividend is recorded by debiting Property Dividend Payable and crediting Common Stock and Paid-in Capital in Excess of Par-Common.

Step-by-step explanation:

To record the necessary adjustments for the property dividend, the Equity securities account is decreased by the fair value of the investment shares, and Retained Earnings is increased by the same amount. This recognizes the transfer of value from the investment to the shareholders.

The declaration of the property dividend is recorded by debiting Retained Earnings and crediting Property Dividend Payable for the fair value of the dividend.

On the date of record, no journal entry is recorded.

The distribution of the property dividend is recorded by debiting Property Dividend Payable and crediting Common Stock and Paid-in Capital in Excess of Par-Common for the par value of the dividend.

The stock split is recorded by increasing the number of Common Stock shares and decreasing the par value per share.

The declaration and distribution of the stock dividend are recorded by debiting Retained Earnings and crediting Common Stock and Paid-in Capital in Excess of Par-Common for the fair value of the dividend.

The cash dividend on preferred stock is recorded by debiting Retained Earnings and crediting Dividends Payable.

On the date of record, no journal entry is recorded.

The payment of cash dividends to preferred shareholders is recorded by debiting Dividends Payable and crediting Cash.

The declaration of cash dividends to common shareholders is recorded by debiting Retained Earnings and crediting Dividends Payable.

On the date of record, no journal entry is recorded.

The payment of cash dividends to common shareholders is recorded by debiting Dividends Payable and crediting Cash.