Question

(c) Prepare a stockholders' equity section at December 31 P14-2B The stockholders' equity accounts of Motz Inc., at January 1, 2012, are as follows. Preferred Stock, $100 par, 7% $600,000 Common Stock, $10 par 900,000 Paid-in Capital in Excess of Par-Preferred Stock 100,000 Paid-in Capital in Excess of Par-Common Stock 200,000 Retained Earnings 500,000 There were no dividends in arrears on preferred stock. During 2012, the company had the following transactions and events. Declared a $0.50 cash dividend on common stock July 1 Discovered a $72,000 overstatement of 2011 depreciation on equipment. Ignore Aug. 1 income taxes 1 Paid the cash dividend declared on July 1 Sept. 1 Declared a 10 % stock dividend on common stock when the market value of the stock was $16 per share. Dec. Declared a 7 % cash dividend on preferred stock payable January 31, 2013 15 Determined that net income for the year was $350,000. 31 Instructions (a) Journalize the transactions and the closing entry for net income. (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, 2012

Answer 1

Requirement (a):

Date	Account title and explanation	Debit	Credit
July 1	Cash Dividends [90,000 x $0.50]	$45,000
	Dividends payable-common stock		$45,000
	[To record Declaration of cash dividends]
Aug.1	Accumulated depreciation-equipment	$72,000
	Retained earnings		$72,000
	[To record overstated depreciation of 2011]
Sept.1	Dividends payable-common stock	$45,000
	Cash		$45,000
	[To record payment of cash dividends]
Dec.1	Retained earnings [90,000 x 10%] x $16	$144,000
	Common stock dividends payable		$144,000
	[To record declaration of stock dividends]
Dec.15	Cash dividends [600,000 x 7%]	$42,000
	Dividends payable-preferred stock		$42,000
	[To record Declaration of cash dividends]
Dec.31	Income summary	$350,000
	Retained earnings		$350,000
	[To record net income]
Dec.31	Retained earnings [45,000+42,000]	$87,000
	Cash dividends		$87,000
	[To close cash dividends account]

Requirement (b):

Preferred stock
		Beg.	$600,000
		End.	$600,000
Common stock
		Beg.	$900,000
		End.	$900,000
Paid-in capital in excess of par-preferred stock
		Beg.	$100,000
		End.	$100,000
Paid-in capital in excess of par - common stock
		Beg.	$200,000
		End.	$200,000
Retained earnings
Aug.1	$72,000	Beg.	$500,000
Dec.1	$144,000	Dec.31	$350,000
Dec.31	$87,000
		End.	$547,000

Requirement (c):

Motz. Inc.
Statement of retained earnings
For the year ended Dec 31,2012
Retained earnings, Jan 1,2012		$500,000
Net income		$350,000
Balance		$850,000
(Less): Dividends:
Cash dividends	$144,000
Stock dividends	$87,000	($231,000)
Overstatement of depreciation in 2011		($72,000)
Retained earnings, Dec 31,2012		$547,000

Requirement (d):

Motz. Inc.
Balance sheet (partial)
At Dec 31,2012
Stockholders' equity:
Preferred stock	$600,000
Common stock	$900,000
Paid-in capital in excess of par-preferred stock	$100,000
Paid-in capital in excess of par - common stock	$200,000
Total paid-in capital		$1,800,000
Retained earnings		$547,000
Total stockholders' equity		$2,347,000