The stockholders’ equity accounts of Karp Company at January 1, 2017, are as fol

Question

The stockholders’ equity accounts of Karp Company at January 1, 2017, are as follows:

Preferred Stock, 6%, $50 par $570,000

Common Stock, $7 par 1,092,000

Paid-in Capital in Excess of Par—Preferred Stock 190,500

Paid-in Capital in Excess of Par—Common Stock 304,500

Retained Earnings 829,000

There were no dividends in arrears on preferred stock. During 2017, the company had the following transactions and events:

July 1 Declared a $0.70 cash dividend per share on common stock.

Aug. 1 Discovered $23,000 understatement of depreciation expense in 2016. (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 $17 per share.

15 Declared a 6% cash dividend on preferred stock payable January 15, 2018.

31 Determined that net income for the year was $374,000.

31 Recognized a $213,000 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 @ December 31,2017.

Explanation / Answer

a. Journal entries:

c. Statement of retained earnings for the year ending December 31, 2017:

d. Stockholders Equity as of December 31, 2017:

Date Account Titles Debit Credit $ $ July 1 2017 Retained earnings 109,200 Dividends payable - common stock 109,200 Aug 1 2017 Retained earnings 23,000 Accumulated depreciation 23,000 September 1 2017 Dividends payable - common stock 109,200 Cash 109,200 Dec 1 2017 Retained earnings 265,200 Common stock dividend distributable 109,200 Paid-in capital in excess of par-common stock 156,000 Common stock dividend distributable 109,200 Common stock 109,200 Dec 15 2017 Retained earnings 34,200 Dividends payable-preferred stock 34,200 Dec 31 2017 Income summary 374,000 Retained earnings 374,000 Dec 31 2017 Retained earnings 213,000 Reserve for plant extension 213,000

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