Exercise 18-18
Shown below in T-account format are the changes affecting the retained
earnings of Brenner-Jude Corporation during 2013. At January 1,
2013, the corporation had outstanding 105 million common shares at
$1 par.
Retained Earnings ($ in millions)
Retirement of 5 million common
shares for $22
2
90 Beginning balance
88 Net income for the year
Declaration and payment of a $0.33
per share cash dividend
33
Declaration and distribution of a 4%
stock dividend
20
123 Ending balance
© Dr. Chula King
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Exercise 18-18 (continued)
Part 1: From the information provided by the account changes, you
should be able to recreate the transactions that affected BrennerJude’s retained earnings during 2013. Prepare the journal entries that
Brenner-Jude must have recorded during the year for these
transactions.
transactions
#1: The $2 debit represents difference between the $22 million that was
paid to retire the 5 million shares, and the combined par value of $1
per share and PIC in excess of par which will be a plug number.
Common stock (5 million x $1 par)
5
Retained earnings (given)
2
PIC in excess of par (plug)
15
Cash (given)
22
© Dr. Chula King
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1
Exercise 18-18 (continued)
#2: The closing of Income Summary to Retained earnings
Income summary
88
Retained earnings (given)
88
#3: The declaration/payment of the cash dividend is $33
Retained earnings (given)
33
Cash
33
#4: The declaration of the 4% stock dividend would have been based on
100 million shares (105 million at the beginning of the year less the
retirement of 5 million shares)
Retained earnings (given)
20
Common stock [(4% x 100 million) x $1]
4
PIC in excess of par (plug)
16
© Dr. Chula King
All Rights Received
Exercise 18-18 (continued)
Part 2: Prepare a statement of retained earnings for Brenner-Jude for
the year ended 2013.
Brenner-Jude Corporation
Statement of Retained Earnings
For the year ended December 31, 2013
Balance, January 1
$ 90
Add: Net Income
88
Deduct:
Retirement of common stock
$ 2
Cash dividends
33
Stock dividend
20
(55)
Balance, December 31
$123
© Dr. Chula King
All Rights Received
2