E11-16 Before preparing financial statements for the current year, the chief acc

Question

E11-16 Before preparing financial statements for the current year, the chief accountant for
Springer Company discovered the following errors in the accounts.

1. The declaration and payment of $50,000 cash dividend was recorded as a debit to Interest
Expense $50,000 and a credit to Cash $50,000.

2. A 10% stock dividend (1,000 shares) was declared on the $10 par value stock when the
market value per share was $16. The only entry made was: Retained Earnings (Dr.) $10,000
and Dividends Payable (Cr.) $10,000.The shares have not been issued.

3. A 4-for-1 stock split involving the issue of 400,000 shares of $5 par value common stock for
100,000 shares of $20 par value common stock was recorded as a debit to Retained Earnings
$2,000,000 and a credit to Common Stock $2,000,000.
Instructions

Prepare the correcting entries at December 31.

Explanation / Answer

3.. Before preparing financial statements for the current year, the chief accountant for Reynolds Company discovered the following errors in the accounts.
1. The declaration and payment of $50,000 cash dividend was recorded as a debit to Interest Expense $50,000 and a credit to Cash $50,000.
Dr Retained Earnings 50,000
Cr Interest Expense 50,000
2. A 10% stock dividend (1,000 shares) was declared on the $10 par value stock when the market value per share was $18. The only entry made was: Retained Earnings (Dr.) $10,000 and Dividend Payable (Cr.) $10,000.The shares have not been issued.
Dr Dividends Payable 10,000
Dr Retained Earnings 8,000
Cr Stock Dividends Distributable 10,000
Cr Paid-In Capital in Excess of Par 8,000
3. A 4-for-1 stock split involving the issue of 400,000 shares of $5 par value common stock for 100,000 shares of $20 par value common stock was recorded as a debit to Retained Earnings $2,000,000 and a credit to Common Stock $2,000,000.
Dr Common Stock 2,000,000
Cr Retained Earnings 2,000,000

Compound entry for corrections
Dr Common Stock 2,000,000
Dr Dividends Payable 10,000
Cr Interest Expense 50,000
Cr Stock Dividends Distributable 10,000
Cr Paid-In Capital in Excess of Par 8,000
Cr Retained Earnings 1,942,000

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.