Question

The post-closing trial balance of Pharoah Corporation at December 31, 2020, contains the following stockholders’ equity accounts.

Preferred Stock (15,200 shares issued)$760,000

Common Stock (258,000 shares issued)2,580,000

Paid-in Capital in Excess of Par—Preferred Stock258,000

Paid-in Capital in Excess of Par—Common Stock380,000

Common Stock Dividends Distributable258,000

Retained Earnings968,470

A review of the accounting records reveals the following.

1.No errors have been made in recording 2020 transactions or in preparing the closing entry for net income.

2.Preferred stock is $50 par, 6%, and cumulative; 15,200 shares have been outstanding since January 1, 2019.

3.Authorized stock is 20,200 shares of preferred, 516,000 shares of common with a $10 par value.

4.The January 1 balance in Retained Earnings was $1,190,000.

5.On July 1, 20,700 shares of common stock were issued for cash at $18 per share.

6.On September 1, the company discovered an understatement error of $85,900 in computing salaries and wages expense in 2019. The net of tax effect of $60,130 was properly debited directly to Retained Earnings.

7.A cash dividend of $258,000 was declared and properly allocated to preferred and common stock on October 1. No dividends were paid to preferred stockholders in 2019.

8.On December 31, a 10% common stock dividend was declared out of retained earnings on common stock when the market price per share was $18.

9.Net income for the year was $561,000.

10.On December 31, 2020, the directors authorized disclosure of a $203,000 restriction of retained earnings for plant expansion. (Use Note X.)

With this information

-reproduce the Retained Earnings account for 2020

- prepare a stockholder's equity section at Dec 31, 2020

- compute the allocation of the cash dividend for preferred and common stock

Answer 1

18 19 Ques 1 Retained Earnings Sep 1 prior period adil $ dec 1 cash dividends $ dec 31 stock divl $ 60,130 jan 1 balance $ 258,000 dec 1 net income $ 464,400 1,190,000 561,000 dec 31 balance $ 968,470

-8 Ques 2 Storey Corp. Retained Earnings Statement For the Year Ending December 31, 2017 2 Balance 1/1 3 Correction for overstatement, 2016 net income (salaries & wages exp. was understated) 5 Adjusted Balance 1/1 £6 Add: Net Income $ 1,190,000 $ (60,130) 1,129,870 561,000 1,690,870 8 Less: Cash Dividends 9 Stock Dividends 20 Balance 12/31/2017 258,000 464,400 $ $ 722,400 968,470

42 Ques 3 760,000 Storey Corp. Balance Sheet - Partial 31-Dec-17 47 Stockholder's Equity Paid-in Capital Capital Stock Preferred Stock Common Stock ($1h par) Common Stock Dividends Distributable Total Capital Stock Additional Paid-in Capital In Excess of Par/Preferred Stock In Excess of Par/Common Stock Total Additional Paid-in Capital Total Paid-in Capital Retained Earnings Total Stockholder's Equity $ $ 2,580,000 258,000 $ $ 2,838,000 3,598,000 $ $ 258,000 380,000 $ $ $ 638,000 4,236,000 968,470 5,204,470