1.
Prepare necessary
1.
Explanation of Solution
Retained earnings: Retained earnings are that portion of profits which are earned by a company but not distributed to stockholders in the form of dividends. These earnings are retained for various purposes like expansion activities, or funding any future plans.
Prepare necessary journal entry to record the given transaction.
Date | Account Titles and explanation | Debit ($) | Credit ($) |
January | 100,000 | ||
Additional paid-in capital on preferred stock | 5,000 | ||
Retained earnings | 11,000 | ||
Cash | 116,000 | ||
( To record 1,000 shares that were recalled and retired) | |||
April | Retained earnings | 35,200 | |
Common stock to be distributed | 22,000 | ||
Additional paid-in capital on common stock | 13,200 | ||
(To record the declaration and issuance of stock dividend on common stock) | |||
Common stock to be distributed | 22,000 | ||
Common stock, $10 par | 22,000 | ||
(To record the issuance of common stock) | |||
November | 18,000 | ||
Cash | 18,000 | ||
(To record the treasury stock 1,000 shares on common being reacquired for $18) | |||
December | Retained earnings | 10,500 | |
Dividend payable: preferred stock | 10,500 | ||
(To record the declaration of annual cash dividend on preferred stock) | |||
December | Retained earnings | 23,200 | |
Dividend payable: common stock (1) | 23,200 | ||
(To record the declaration of annual cash dividend on common stock) | |||
Dividends payable: Preferred stock | 10,500 | ||
Cash | 10,500 | ||
(To record the payment of cash dividend on preferred stock) | |||
Dividends payable: Common stock | 23,200 | ||
Cash | 23,200 | ||
(To record the payment of cash dividend on common stock) | |||
Income summary | 87,000 | ||
Retained earnings | 87,000 | ||
(To record the transfer of net income from income summary to retained earnings) | |||
Retained earnings | 10,000 | ||
Accumulated depreciation | 10,000 | ||
(To record the depreciation expense of $10,000 omitted) | |||
Income tax payable | 3,000 | ||
Retained earnings | 3,000 | ||
( To record interest payable) | |||
Accumulated depreciation | 8,000 | ||
Retained earnings | 8,000 | ||
( To record the understatement made on both accumulated depreciation and gain recognized on sale by $8,000 ) | |||
Retained earnings | 2,400 | ||
Income tax payable | 2,400 | ||
( To record payment on income tax that were earned earlier) |
(Table 1)
Working note (1): Calculate the amount of dividend payable to the common stock:
2.
Prepare the statement of retained earnings for the Company C for the year ended December 31, 2019 and also provide necessary notes to its financial statement for the year ended December 31, 2019.
2.
Explanation of Solution
Prepare the statement of retained earnings for the Company C for the year ended December 31, 2019:
Company C | ||
statement of retained earnings | ||
For the year ended December 31,2019 | ||
Particulars | Amount in $ | Amount in $ |
Retained earnings, as previously reported, January 1, 2019 | 182,200 | |
Add: Correction of overstatement in 2018 gain on sale of equipment ( net of $2,400 income taxes) | 5,600 | |
Less: Correction of omission of 2018depreciation on certain machinery(net of $3,000 income tax credit) | (7,000) | |
Adjusted retained earnings, January 1, 2019 | 180,000 | |
Add: Net income | 87,000 | |
267,800 | ||
Less: Stock dividends ($16 current market price on 2,200 shares) | 35,200 | |
Cash dividend: preferred stock ($7 on 1,500 shares) | 10,500 | |
Cash dividend: common stock ($1 on 23,200 shares) | 23,200 | |
Reduction of retained earnings due to a retirement of preferred stock at a call price higher than the original issue price (23,200 shares at $11 excess). | 11,000 | (79,900) |
Retained earnings, December 31, 2019 | 187,900 |
(Table 2)
Notes to financial statements:
- Note A: the amount of retained earnings is limited with the $18,000, the cost related to the treasury stock of 1,000 shares on common stock is being held.
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Chapter 16 Solutions
Intermediate Accounting: Reporting And Analysis
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