Question

The post-closing trial balance of Blossom Corporation at December 31, 2020, contains the following stockholders' equity accounts. Preferred Stock (14,000 shares issued) Common Stock (240,000 shares issued) Paid-in Capital in Excess of Par-Preferred Stock Paid-in Capital in Excess of Par-Common Stock Common Stock Dividends Distributable Retained Earnings $700,000 2,400,000 240,000 380,000 240,000 966,500 A review of the accounting records reveals the following. 1. 2. 3. 6. No errors have been made in recording 2020 transactions or in preparing the closing entry for net income. Preferred stock is $50 par, 6%, and cumulative; 14,000 shares have been outstanding since January 1, 2019. Authorized stock is 19,000 shares of preferred, 480,000 shares of common with a $10 par value. The January 1 balance in Retained Earnings was $1,100,000. On July 1, 18,000 shares of common stock were issued for cash at $16 per share. On September 1, the company discovered an understatement error of $85,000 in computing salaries and wages expense in 2019. The net of tax effect of $59,500 was properly debited directly to Retained Earnings. A cash dividend of $240,000 was declared and properly allocated to preferred and common stock on October 1. No dividends were paid to preferred stockholders in 2019. On December 31, a 10% common stock dividend was declared out of retained earnings on common stock when the market price per share was $16. Net income for the year was $550,000. On December 31, 2020, the directors authorized disclosure of a $190,000 restriction of retained earnings for plant expansion. (Use Note X.) 7. 8. 10.

Answer 1

Solution:

Retained Earnings Account
Correction of understatement error	59500	Beg. balance	1100000
Cash dividend	240000	Net income	550000
stock dividend (240000*10%*$16)	384000
		Ending balance	966500