Question

Problem 21.3A Recording cash dividends, stock dividends, and appropriation of retained earnings; preparing statement of retained earnings. LO 21-5, 21-6, 21-8, 21-11

The stockholders' equity accounts of Jacob Corporation on January 1, 2019, contained the following balances:

Preferred Stock (10%, $100 par value, 4,000 shares authorized)
Issued and Outstanding, 1,500 Shares	$	150,000
Paid-in Capital in Excess of Par Value—Preferred		1,500		$	151,500
Common Stock ($20 par value, 30,000 shares authorized)
Issued and Outstanding, 20,000 Shares					400,000
Retained Earnings					395,500
Total Stockholders’ Equity				$	947,000

DATE			TRANSACTIONS
June	15		Declared a semiannual dividend of 5 percent on preferred stock, payable on July 15 to stockholders of record on June 30.
July	15		Paid the dividend on preferred stock.
Dec.	15		Declared a semiannual dividend of 5 percent on preferred stock, payable on January 15, 2020, to stockholders of record on December 31, 2019, and a cash dividend of $2.00 per share on common stock, payable on January 15, 2020, to stockholders of record on December 31, 2019. Make separate entries.
	15		Declared a 10 percent common stock dividend to common stockholders of record on December 31, 2019. The new shares are to be issued on January 15, 2020. A fair value price of $25 per share is expected for the new shares of common stock.
Dec.	31		Created an “appropriation of retained earnings for contingencies” of $50,000 because of the poor economic outlook.
	31		The Income Summary account contained a debit balance of $25,000. The board had anticipated a net loss for the year and no quarterly deposits of estimated income taxes were made, so income taxes may be ignored.

Required:

1. & 2. Record the above transactions in the general journal for 2019 and Post them to the Retained Earnings account (381) and record the January 1, 2019, balance.

Prepare a statement of retained earnings for the year 2019.

Analyze:
If Jacob Corporation had not declared cash or stock dividends for common stockholders, what balance would be found in the unappropriated Retained Earnings account at December 31, 2019?

Answer 1

Date	Account Title	Debit	Credit
15-Jun	Retained Earnings	7500
	Preference dividends payable		7500
	(150000*5%)
15-Jul	Preference dividends payable	7500
	Cash		7500
15-Dec	Retained Earnings	7500
	Preference dividends payable		7500
	(150000*5%)
	Retained Earnings	40000
	Common shares dividend payable
	(20000*2)		40000
15-Dec	Retained Earnings	50000
	Common Stock dividend distributable		40000
	Paid-in capital in Excess of Par value-Common stock		10000
	(20000*10%*25)
	(20000*10%*20)
31-Dec	Retained Earnings	50000
	Appropriation of retained earnings for contingencies		50000
31-Dec	Retained Earnings	25000
	Income Summary		25000
		187500	187500

	RETAINED EARNINGS ledger a/c
1-Jan	Beginning balance		395500
15-Jun	Preference dividends payable	7500
15-Dec	Preference dividends payable	7500
15-Dec	Common shares dividend payable	40000
	Common Stock dividend distributable(40000+10000)	50000
31-Dec	Appropriation of retained earnings for contingencies	50000
31-Dec	Income Summary	25000
	Balance c/d	215500
		395500	395500

Statement of Retained earnings for the Year 2019
Beginning balance as on Jan 1	395500
Preference dividends payable	7500
Preference dividends payable	7500
Common shares dividend payable	40000
Common Stock dividend distributable(40000+10000)	50000
Appropriation of retained earnings for contingencies	50000
Income Summary	25000
Ending balance	215500
If no dividends (cash or stock)have been paid , the balance in the retained earnings a/c would have been
395500-50000-25000=
320500