Question

review of the accounting records for the year 2014 reveal the following:
a. The January 1, 2014 balances are:
Share Premium – Preference ……………………………….OMR 250,000
Share Premium – Ordinary …………………………………OMR 425,000
Retained Earnings ………………………………………….OMR 1,200,000.
b. No errors have been made in recording 2014 transactions or in preparing closing entry for the net income.  
c. Preference shares are OMR 50 par, 7%, and cumulative; 15,000 shares have been outstanding since January 1, 2013.
d. Ordinary shares are OMR 10 par, 250,000 shares issued and outstanding.   
e. On September 1, 2014 the company discovered an understatement error of OMR 56,000 in computing depreciation in 2013.
f. A cash dividend of OMR 250,000 was declared and properly allocated to preference and ordinary shares on October 1, 2014. No dividends were paid to preference shareholders.
g. On December 31, 2014, a 10% ordinary share dividend was declared out of retained earnings on ordinary shares when the market price per share was OMR 17.
h. Net Income for the year 2014 was OMR 585,000.
You are required to answer the following questions: (Show all calculations clearly)
(A) Prepare a retained earnings statement for 2014.   
(B) Prepare an equity section at December 31, 2014.                              

Answer 1