Question

The post-closing trial balance of Storey Corporation at December 31, 2017, contains the following stockholders’ equity accounts.

Preferred Stock (16,000 shares issued)
$800,000
Common Stock (259,000 shares issued)
2,590,000
Paid-in Capital in Excess of Par—Preferred Stock
259,000
Paid-in Capital in Excess of Par—Common Stock
410,000
Common Stock Dividends Distributable
259,000
Retained Earnings
921,900

A review of the accounting records reveals the following.

1.
No errors have been made in recording 2017 transactions or in preparing the closing entry for net income.
2.
Preferred stock is $50 par, 6%, and cumulative; 16,000 shares have been outstanding since January 1, 2016.
3.
Authorized stock is 21,000 shares of preferred, 518,000 shares of common with a $10 par value.
4.
The January 1 balance in Retained Earnings was $1,120,000.
5.
On July 1, 21,600 shares of common stock were issued for cash at $18 per share.
6.
On September 1, the company discovered an understatement error of $87,000 in computing salaries and wages expense in 2016. The net of tax effect of $60,900 was properly debited directly to Retained Earnings.
7.
A cash dividend of $259,000 was declared and properly allocated to preferred and common stock on October 1. No dividends were paid to preferred stockholders in 2016.
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 $588,000.
10.
On December 31, 2017, the directors authorized disclosure of a $193,000 restriction of retained earnings for plant expansion. (Use Note X.))Reproduce the Retained Earnings account (T-account)

(b)Prepare a retained earnings statement .

(c)Prepare a stockholders’ equity section at December 31, 2017

(d)Compute the allocation of the cash dividend to preferred and common stock.

Answer 1

a)

Retained Earnings
Prior adjsutment	$60,900	Opening balance	$        1,120,000
Dividend cash	259,000	Net income	$            588,000
Stock dividend (259000*10%*$18)	466,200
Balance	$921,900
	$1,708,000		$        1,708,000
b) Retained Earnings Statement
Balance Jan 1	$        1,120,000
Correction of overstatment of net income	$            (60,900)
Balance Jan 1 as adjusted	$        1,059,100
Add:Net income	$            588,000
Less:Cash Dividends	$         (259,000)
Stock dividends	$         (466,200)
Balance as on Dec 31	$            921,900

c) Stockholders’ equity section at December 31, 2017

C) Stockholder's Equity
Paid in capital 6% preferred stock $50 par value
cumulative 21,000 authorised
16,000 outstanding		$800,000
Common stock $10 par value
518,000 authorised , 259,000 issued	2,590,000
Common stock distributable	$   259,000	2,849,000
Total capital stock		$3,649,000
Addittional paid in capital
In excess of par value -
Preferred stock	$   259,000
common stock	$   410,000	$     669,000
Total paid in capital		$4,318,000
Add: Retained earnings (note X)		$     921,900
Total Stockholder's Equity		$5,239,900

d) total cash dividend		$     259,000
Alloacted to preferred stock
dividend in arrear
(50 @6% = $3 *16,000)	$      48,000
This year	$      48,000	$       96,000
Remainder for common stock holders		$     163,000