The stockholders’ equity accounts of Karp Company at January 1, 2017, are as fol
ID: 2425626 • Letter: T
Question
The stockholders’ equity accounts of Karp Company at January 1, 2017, are as follows.
There were no dividends in arrears on preferred stock. During 2017, the company had the following transactions and events.
Recognized a $200,000 restriction of retained earnings for plant expansion.
A) Journalize the transactions, events, and closing entries for net income and dividends.
B) Enter the beginning balances in the accounts, and post to the stockholders’ equity accounts.
C) Prepare a retained earnings statement for the year.
D) Prepare a stockholders’ equity section at December 31, 2017.
Preferred Stock, 6%, $50 par $600,000 Common Stock, $5 par 800,000 Paid-in Capital in Excess of Par—Preferred Stock 200,000 Paid-in Capital in Excess of Par—Common Stock 300,000 Retained Earnings 800,000Explanation / Answer
(a) July 1 Retained Earnings
[($800,000 ÷ $5) X $.50].................................................... 80,000
Dividends Payable—Common
Stock.................................................................................... 80,000
Aug. 1 Retained Earnings.............................................................. 25,000
Accumulated Depreciation.................................................... 25,000
Sept. 1 Dividends Payable—Common
Stock................................................................................... 80,000
Cash........................................................................................ 80,000
Dec. 1 Retained Earnings (16,000 X $18)..................................... 288,000
Common Stock Dividends
Distributable (16,000 X $5)............................................... 80,000
Paid-in Capital in Excess of
Par Value—Common Stock
(16,000 X $13)..................................................................... 208,000
15 Retained Earnings (12,000 X $3)............................. ......... 36,000
Dividends Payable—Preferred
Stock.................................................................................... 36,000
31 Income Summary................................................................ 355,000
Retained Earnings................................................................. 355,000
(b)
Preferred Stock
Date
Explanation
Ref.
Debit
Credit
Balance
Jan. 1
Balance
600,000
Common Stock
Date
Explanation
Ref.
Debit
Credit
Balance
Jan. 1
Balance
800,000
Common Stock Dividends Distributable
Date
Explanation
Ref.
Debit
Credit
Balance
Dec. 1
80,000
80,000
Paid-in Capital in Excess of Par Value—Preferred Stock
Date
Explanation
Ref.
Debit
Credit
Balance
Jan. 1
Balance
200,000
Paid-in Capital in Excess of Par Value—Common Stock
Date
Explanation
Ref.
Debit
Credit
Balance
Jan. 1
Dec. 1
Balance
208,000
300,000
508,000
Retained Earnings
Date
Explanation
Ref.
Debit
Credit
Balance
Jan. 1
July 1
Aug. 1
Dec. 1
Dec. 15
Dec. 31
Balance
Cash dividend—
common
Prior period
adjustment—
depreciation
Stock dividend—
common
Cash dividend—
preferred
Net income
80,000
25,000
288,000
36,000
355,000
800,000
720,000
695,000
407,000
371,000
726,000
(c) Karp COMPANY
Retained Earnings Statement
For the Year Ended December 31, 2017
Balance, January 1, as reported........................................... $ 800,000
Correction of 2009 depreciation........................................... 25,000
Balance, January 1, as adjusted............................................ 775,000
Add: Net income.................................................................. 355,000
1,130,000
Less: Cash dividends—preferred........................................ $36,000
Stock dividends—common..................................... 288,000
Cash dividends—common...................................... 80,000 404,000
Balance, December 31............................................................ $ 726,000
(d) Karp COMPANY
Balance Sheet
December 31, 2017
Stockholders’ equity
Paid-in capital
Capital stock
6% Preferred stock, $50 par
value, 12,000 shares issued...................... $ 600,000
Common stock, $5 par value,
160,000 shares issued............................... $800,000
Common stock dividends
distributable
(16,000 shares).......................................... 80,000 880,000
Total capital stock............................... 1,480,000
Additional paid-in capital
In excess of par value—
preferred stock......................................... 200,000
In excess of par value—
common stock........................................... 508,000
Total additional paid-in
capital............................................... 708,000
Total paid-in capital............................ 2,188,000
Retained earnings (see Note B)..................................... 726,000
Total stockholders’
equity................................................ $2,914,000
Note B:Retained earnings is restricted for plant expansion, $200,000.
Date
Explanation
Ref.
Debit
Credit
Balance
Jan. 1
Balance
600,000
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