Question

Exercise 11-16 Before preparing financial statements for the current year, the chief accountant for Novak Corp. discovered the following errors in the accounts. 1. The declaration and payment of $56,500 cash dividend was recorded as a debit to Interest Expense $56,500 and a credit to Cash $56,500. 2. A 10% stock dividend (1,000 shares) was declared on the $14 par value stock when the market price per share was $18. The only entry made was Stock Dividends (Dr.) $14,000 and Dividend Payable (Cr.) $14,000. The shares have not been issued. 3. A 4-for-1 stock split involving the issue of 373,000 shares of $5 par value common stock for 93,250 shares of $20 par value common stock was recorded as a debit te Retained Earnings $1,865,000 and a credit to Common Stock $1,865,000. Prepare the correcting entries at December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry required, select "No Entry" for the account titles and enter for the amounts.) Debit Credit No. Date Account Titles and Explanation 1. Dec. 31 2. Dec. 31 3. Dec. 31

Answer 1

SOLUTION

S.No.	Date	Accounts titles and Explanation	Debit ($)	Credit ($)
1.	Dec.31	Retained Earnings (or Dividends)	56,500
		Interest expense		56,500
2.	Dec.31	Dividend Payable (1,000*$14)	14,000
		Retained Earnings [1,000*($18-$14)]	4,000
		Common stock dividend distributable		14,000
		Paid in capital in excess of par - Common stock		4,000
3.	Dec.31	Common stock	1,865,000
		Retained earnings		1,865,000