Question

Knapp Industries began business on January 1, 2018 by issuing all of its 1,200,000 authorized shares of its $2 par value common stock for $23 per share. On June 30, Knapp declared a cash dividend of $1.75 per share to stockholders of record on July 31. Knapp paid the cash dividend on August 30. On November 1, Knapp reacquired 240,000 of its own shares of stock for $28 per share. On December 22, Knapp resold 120,000 of these shares for $34 per share.

Required:
a. Prepare all of the necessary journal entries to record the events described above.
b. Prepare the stockholders' equity section of the balance sheet as of December 31, 2018 assuming that the net income for the year was $4,500,000.
Complete this question by entering your answers in the table below
Required A Required B
Prepare all of the necessary journal entries to record the events described a "No Journal Entry Required" in the first account field.)

Answer 1

Knapp Industries

a. Journal Entries:

January 1, 2018: Debit Cash $27,600,000

Credit Common stock $2,400,000

Credit Additional Paid-in Capital $25,200,000

To record the issuance of 1,200,000 shares of $2 par for $23 per share.

June 30: Debit Cash Dividends $2,100,000

Credit Dividends Payable $2,100,000

To record the declaration of $1.75 per share dividend.

August 30: Debit Dividends Payable $2,100,000

Credit Cash $2,100,000

To record the payment of dividends.

November 1: Debit Treasury stock $480,000

Debit Additional Paid-in Capital $6,240,000

Credit Cash $6,720,000

To record the repurchase of 240,000 treasury stock shares at $28 per share.

December 22: Debit Cash $4,080,000

Credit Treasury stock $240,000

Credit Additional Paid-in Capital $3,840,000

To record the resale of 120,000 treasury stock shares at $38 per share.

b. Stockholders' Equity Section of the Balance Sheet as of December 31, 2018:

Authorized share capital:

1,200,000 shares of Common stock at $2 par

Issued and Outstanding shares:

Common stock, 1,200,000 shares at $2 par $2,400,000

Treasury stock, 120,000 shares at $2 par (240,000)

Outstanding shares, 1,080,000 shares $1,080,000

Additional Paid-in Capital ($25.2 - $6.24 + $3.84) 22,800,000

Retained earnings 2,400,000

Total equity $26,280,000

Step-by-step explanation:

a) Data and Analysis:

January 1, 2018:

Cash $27,600,000 Common stock $2,400,000 Additional Paid-in Capital $25,200,000

Issuance of 1,200,000 shares of $2 par for $23 per share.

June 30: Cash Dividends $2,100,000 Dividends Payable $2,100,000

August 30: Dividends Payable $2,100,000 Cash $2,100,000

November 1: Treasury stock $480,000 Additional Paid-in Capital $6,240,000 Cash $6,720,000

December 22: Cash $4,080,000 Treasury stock $240,000 Additional Paid-in Capital $3,840,000

Retained Earnings:

Net income for the year = $4,500,000

Dividends paid = (2,100,000)

Retained earnings, dec. 31 $2,400,000