The stockholders\' equity accounts of Karp Company at January 1, 2017, are as fo

Question

The stockholders' equity accounts of Karp Company at January 1, 2017, are as follows: Preferred Stock, 6%, $50 par Common Stock, $5 par Paid-in Capital in Excess of Par-Preferred Stock Paid-in Capital in Excess of Par-Common Stock Retained Earnings $645,000 820,000 203,000 304,500 816,000 There were no dividends in arrears on preferred stock. During 2017, the company had the following transactions and events July 1 Aug. 1 Sept. 1 Dec. 1 15 31 31 Declared a $0.80 cash dividend per share on common stock Discovered $27,000 understatement of depreciation expense in 2016. (Ignore income taxes.) Paid the cash dividend declared on July 1. Declared a 10% stock dividend on common stock when the market price of the stock was $18 per share Declared a 6% cash dividend on preferred stock payable January 15, 2018. Determined that net income for the year was $383,000 Recognized a $212,000 restriction of retained earnings for plant expansion. Journalize the transactions, events, and closing entries for net income and dividends. (Credit account titles are automatically i entry is required, select "No Entry" for the account titles and enter O for the amounts. Record journal entries in the or Date Account Titles and Explanation Debit Credit

Explanation / Answer

number of common shares = 820,000/5 = 164000 Date Account titles and Explanation Debit Credit 1-Jul Cash dividend 131200 Dividend payable - common stock 131,200 (164000*$0.80) 1-Aug Retained earnings 27,000 Accumulated depreciation 27,000 1-Sep Dividends payable 131200 cash 131200 1-Dec Stock dividend (164000*10%)*18 295200 common Stock dividend distributable (16,400*5) 82000 Paid in capital in excess of par-Common stock 213200 15-Dec Cash dividend 38700 dividends payable-preferred stock 38,700 (50*6%*12,900) 31-Dec income summary 383,000 Retained earnings 383,000 31-Dec No Entry required Need to state in notes the amount restricted Closing entries 31-Dec income summary 383,000 retained earnings 383,000 31-Dec Retained earnings (131200+38700) 169,900 cash dividend - common stock 169,900 31-Dec Retained earnings 295,200 common stock dividend 295,200 Preferred Stock Date Explanation Debit Credit Balance 1-Jan Balance 645,000 Common Stock Date Explanation Debit Credit Balance 1-Jan Balance 820,000 Common stock Dividends distributable Date Explanation Debit Credit Balance 1-Dec stock dividend 82,000 82,000 paid in capital in excess of par -Preferred Stock Date Explanation Debit Credit Balance 1-Dec Balance 203,000 paid in capital in excess of par -common Stock Date Explanation Debit Credit Balance 1-Dec Balance 304,500 Retained Earnings Date Explanation Debit Credit Balance 1-Jan Balance 816,000 1-Aug prior period adjustment -dep expense 27,000 789,000 31-Dec net income 383,000 1,172,000 31-Dec cash dividend 169900 1,002,100 31-Dec stock dividends 295,200 706,900 Cash dividends Date Explanation Debit Credit Balance 1-Jul common stock div 131,200 131,200 15-Dec preferred stock div 38,700 169,900 31-Dec retained earnings 169,900 0 Stock dividend Date Explanation Debit Credit Balance 1-Jul stock dividend 295,200 295,200 15-Dec retained earnings 295,200 0

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