The stockholders’ equity accounts of Holt Inc., at January 1, 2017, are as follo

Question

The stockholders’ equity accounts of Holt Inc., at January 1, 2017, are as follows. Preferred Stock, $100 par, 7% $600,000 Common Stock, $10 par 900,000 Paid-in Capital in Excess of Par—Preferred Stock 100,000 Paid-in Capital in Excess of Par—Common Stock 200,000 Retained Earnings 500,000 There were no dividends in arrears on preferred stock. During 2017, the company had the following transactions and events. July 1 Declared a $0.50 cash dividend per share on common stock. Aug. 1 Discovered a $72,000 overstatement of 2016 depreciation on equipment. (Ignore income taxes.) Sept. 1 Paid the cash dividend declared on July 1. Dec. 1 Declared a 10% stock dividend on common stock when the market price of the stock was $16 per share. 15 Declared a 7% cash dividend on preferred stock payable January 31, 2018. 31 Determined that net income for the year was $350,000. Instructions (a) Journalize the transactions and the closing entries for net income and dividends. (b) Enter the beginning balances in the accounts and post to the stockholders’ equity accounts. (Note: Open additional stockholders’ equity accounts as needed.) (c) Prepare a retained earnings statement for the year. (d) Prepare a stockholders’ equity section at December 31, 2017.

Explanation / Answer

A) accounting entries

01/07/2017 Retained earnings... Dr 450,000

Dividends payable..... 450,000

  (.5*9000,000)

note:it is assumed that dividends was declared out of retained earings.

01/08/2017 Equipment a/c...... Dr 72000

To Profit and loss a/cc....... 72000

(being over statement of depreciation added back to income)

01/09/2017 Divided payable.... Dr 450,000

   To bank....... 450,000

01/12/2017 profit and loss a/c...... Dr 90000

To Equity ddividend... 90000

15/12/2017 profit and loss a/c.... 42000

To preference dividend.... 42000

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