Question

P14-2A The stockholders' equity accounts of Karp Company at January 1, 2017, are as follows. Preferred Stock, 6%, $50 par $600,000 Common Stock, $5 par 800,000 Paid-in Capital in Excess of Par-Preferred Stock 200,000 Paid-in Capital in Excess of Par—Common Stock 300,000 Retained Earnings 800,000 There were no dividends in arrears on preferred stock. During 2017, the company had the following transactions and events. July 1 Declared a $0.60 cash dividend per share on common stock. Aug. 1 Discovered $25,000 understatement of depreciation expense in 2016. (Ignore income taxes.) Sept. 1 Paid the cash dividend declared on July 1. Dec. 1 Declared a 15% stock dividend on common stock when the market price of the stock was $18 per share. 15 Declared a 6% cash dividend on preferred stock payable January 15, 2018. 31 Determined that net income for the year was $355,000. 31 Recognized a $200,000 restriction of retained earnings for plant expansion. Instructions (a) Journalize the transactions, events, and closing entries for net income and dividends. (b) Enter the beginning balances in the accounts, and post to the stockholders' equity accounts. (Note: Open additional stockholders' equity accounts as needed.) (c) Prepare a retained earnings statement for the year. (d) Prepare a stockholders' equity section at December 31, 2017.

Answer 1

Please find below spreadsheet useful to compute desired results: -

9 10 А B с D i Date Account Titles and Explanations Debit Credit 2 42917 Retained Earnings =D3 3 To Proposed Dividend =800000*0.6/5 (Being declared cash dividend per share @ $ 0.60 on common stock) 5 42948 Retained Earnings 25000 6 l To Accumulated Depreciation on Fixed Assets 25000 7 (Being depreciation for the year 2016 underestimated, now rectified) 8 42979 Proposed Dividend To Bank (Being cash dividend declared on common stock on July 1, now paid) 11 43070 Retained Earnings =D12 12 To Proposed Dividend =800000*18*0.15/5 13 Being declared stock dividend @ 15% on common stock when market price was S 18) 14 43070 Proposed Dividend =D12 To Common Stock =800000*5*0.15/5 To Paid-in Capital in excess of par - Common Stock =800000*(18-5)*0.15/5 (Being stock dividend paid) 43084 Retained Earnings =D19 To Proposed Dividend =600000*0.06 Being declared cash dividend @ 6% on preferred stock) 43100 Profit for the year 355000 To Retained Earnings 355000 (Transfer of profit for the year to retained earnings) 43100 Retained Earnings 200000 To Retained Earnings Appropriated for Plant Expansion 200000 (Being retained earnings appropriated for plant expansion)

A 29 30 43100 To Balance Cif Preferred Stock Account =F31 42736 By Balance b/f 600000 =F30 =C30 32 43100 To Balance Cif Common Stock Account =F36 42736 43070 =C34 By Balance b/ f 8 00000 By Proposed Dividend =D15 =F34+F35 39 37 38 43100 To Balance Clf 40 41 42 43 44 43100 To Balance Clf Paid-in Capital in excess of Par - Common stock Account =F41 42736 43070 =C39 By Balance b/f 200000 By Proposed Dividend =D16 =F39+F40 Paid-in Capital in excess of Par - Preferred Stock Account =F45 42736 =C44 By Balance b/f 300000 =F44 46 By Balance b/ f By Profit for the year 8 00000 =D22 48 42917 To Proposed Dividend 49 42948 To Accumulated Depreciation on Fixed Assets 50 43070 To Proposed Dividend 51 43084 To Proposed Dividend 52 43100 To Retained Earnings Appropriated for Plant Expansion 53 43100 To Balance Clf Retained Earnings Account =C2 42736 =D6 43100 =D12 =D19 =D25 =F54-SUM(C48:C52) =SUM(C48:C53) 54 =F48+F49 55

F 56 By Retained Earnings By Retained Earnings By Retained Earnings =C2 =C11 =C18 =SUM(F57-F59) A B Proposed Dividend Account 57 42979 To Bank =D9 42917 58 43070 To Common Stock =D15 43070 59 43070 To Paid-in Capital in excess of Par - Common Stock =D16 43084 60 43100 To Balance C/f =F61-SUM(C57:C59) 61 =SUM(C57:C60) 62 Statement of Retained Earnings for the year ended 31-Dec-17 64 42736 Balance brought forward 800000 Less: 66 42917 Cash Dividend on Common Stock -96000 67 42948 Accumulated Depreciation on Fixed Assets -25000 68 43070 Stock Dividend on Common Stock -432000 69 43084 Cash Dividend on Preferred Stock -36000 70 43100 Appropriated for Plant Expansion -200000 -789000 71 Add: 43100 Profit for the year 355000 73 43100 Balance Carried forward =D64+D70+D72 65 Stockholders' Equity as on 31-Dec-2017 Preferred Stock, 6%, $ 50 par 600000 Common Stock, S5 par 920000 Paid-in Capital in Excess of Par - Common Stock 512000 Paid-in Capital in Excess of Par - Preferred Stock 300000 Retained Earnings 366000 Proposed Dividend 36000 Total Stockholders' Equity as on 31-Dec-2017 =SUM(C76:C81)

End Results in Excel will appear as follows: -

B 6 7 9 10 А C 1 Date Account Titles and Explanations Debit Credit 2 01-Jul-17 Retained Earnings $96.000 3 To Proposed Dividend $96.000 4 (Being declared cash dividend per share a S 0.60 on common stock) 5 01-Aug-17 Retained Earnings $25,000 To Accumulated Depreciation on Fixed Assets $25,000 (Being depreciation for the year 2016 underestimated, now rectified) 8 01-Sep-17 Proposed Dividend $96.000 To Bank $96,000 (Being cash dividend declared on common stock on July 1, now paid) 11 01-Dec-17 Retained Earnings $432.000 12 To Proposed Dividend $432.000 13 (Being declared stock dividend @ 15% on common stock when market price was $ 18) 14 01-Dec-17 Proposed Dividend $432.000 15 To Common Stock $120,000 To Paid-in Capital in excess of par - Common Stock $312,000 (Being stock dividend paid) 18 15-Dec-17 Retained Earnings $36.000 To Proposed Dividend $36.000 (Being declared cash dividend @ 6% on preferred stock) 31-Dec-17 Profit for the year $355,000 To Retained Earnings $355.000 (Transfer of profit for the year to retained earnings) 31-Dec-17 Retained Earnings $200,000 To Retained Earnings Appropriated for Plant Expansion $200,000 (Being retained earnings appropriated for plant expansion)

C Preferred Stock Account $600,000 $600,000 01-Jan-17 By Balance b/f 30 To Balance Clf 31 32 $600.000 $600.000 Common Stock Account $920,000 To Balance Cif 01-Jan-17 By Balance b/f 01-Dec-17 By Proposed Dividend $800,000 $120.000 $920,000 $920,000 38 $200.000 $312.000 $512,000 41 $300.000 $300,000 Paid-in Capital in excess of Par - Common stock Account To Balance Clf $512,000 01-Jan-17 By Balance b/f 40 01-Dec-17 By Proposed Dividend $512,000 42 43 Paid-in Capital in excess of Par - Preferred Stock Account 44 To Balance C/f $300,000 01-Jan-17 By Balance b/f $300,000 46 47 Retained Earnings Account 48 To Proposed Dividend $96,000 01-Jan-17 By Balance b/f 49 To Accumulated Depreciation on Fixed Assets $25,000 31-Dec-17 By Profit for the year 50 To Proposed Dividend $432.000 51 To Proposed Dividend $36.000 52 To Retained Earnings Appropriated for Plant Expansion $200,000 53 To Balance Clf $366.000 $1,155,000 $800,000 $355,000 54 $1,155,000

F $96.000 $432,000 $36.000 $564,000 А B C D 56 Proposed Dividend Account 57 01-Sep-17 To Bank | $96.000 01-Jul-17 By Retained Earnings 58 01-Dec-17 To Common Stock $120,000 01-Dec-17 By Retained Earnings 59 01-Dec-17 To Paid-in Capital in excess of Par - Common Stock $312.000 15-Dec-17 By Retained Earnings 60 31-Dec-17 To Balance Clf $36.000 61 $564,000 62 Statement of Retained Earnings for the year ended 31-Dec-17 01-Jan-17 Balance brought forward $800.000 Less: 66 01-Jul-17 Cash Dividend on Common Stock ($96,000) 67 01-Aug-17|Accumulated Depreciation on Fixed Assets ($25,000) 68 01-Dec-17 Stock Dividend on Common Stock ($432,000) 69 15-Dec-17 Cash Dividend on Preferred Stock ($36,000) 70 31-Dec-17| Appropriated for Plant Expansion ($200,000) S (789,000.00) 71 Add: 72 31-Dec-17 Profit for the year $355,000 73 31-Dec-17 Balance Carried forward $366,000 64 Stockholders' Equity as on 31-Dec-2017 Preferred Stock, 6%. S 50 par Common Stock, S 5 par Paid-in Capital in Excess of Par - Common Stock Paid-in Capital in Excess of Par - Preferred Stock Retained Earnings Proposed Dividend Total Stockholders' Equity as on 31-Dec-2017 $600.000 $920,000 $512,000 $300,000 $366,000 $36.000 $2,734,000