Knapp Industries began business on January 1, 2018 by issuing all of its 1,000,000 authorized shares of its $1 par value common stock for $40 per share. On June 30, Knapp declared a cash dividend of $2 per share to stockholders of record on July 31. Knapp paid the cash dividend on August 30. On November 1, Knapp reacquired 200,000 of its own shares of stock for $50 per share. On December 22, Knapp resold 100,000 of these shares for $60 per share.

Prepare all of the necessary journal entries to record the events described above.

Answer and Explanation:

The Journal entry with their narrations is shown below:-

1. Cash account Dr, $40,000,000

($40 * $1,000,000)

To Common stock $1,000,000

To Paid-in-capital in excess of par $39,000,000

(Being issue of common shares is recorded)

2. Retained earnings Dr, $2,000,000

To Dividend payable $2,000,000

(1,000,000 * $2)

(Being the declaration of the cash dividend on June 30 is recorded)

3. Dividend payable Dr, $2,000,000

To Cash account $2,000,000

(Being the payment of cash dividend on July 30 is recorded)

4. Treasury stock Dr, $10,000,000

(200,000 * $50)

To Cash account $10,000,000

(Being the reacquire of its own share on November 1, is recorded)

5. Cash account Dr, $6,000,000

(100,000 * $60)

To Treasury stock $5,000,000

To Paid-in-capital-treasury stock $100,000

(Being the resale of treasury shares on December 22 is recorded)