Problem 142A The stockholders equity accounts of Karp Compan

Problem 14-2A The stockholders\' equity accounts of Karp Company at January 1, 2017, are as follows. Preferred Stock, 696, $50 par Common Stock, $3 par Paid-in Capital in Excess of Par-Preferred Stock Paid-in Capital in Excess of Par-Common Stock Retained Earnings 590,000 471,000 185,000 296,000 761,000 There were no dividends in arrears on preferred stock. During 2017, the company had the following transactions and events. July 1 Declared a $0.90 cash dividend per share on common stock. Aug. 1 Discovered $28,000 understatement of depreciation expense in 2016. (Ignore income taxes.) Sept. 1 Paid the cash dividend declared on July 1. Dec. 1 Declared a 15% stock dividend on common stock when the market price of the stock was $20 per share. 15 31 31 Declared a 6% cash dividend on preferred stock payable January 15, 2018. Determined that net income for the year was $362,000. Recognized a $219,000 restriction of retained earnings for plant expansion.

Solution

Part 1 - Journal Entry

(Stock dividend recorded for :-

Total Shares = $471000/3 = 157000

Stock Dividend = 157000 * 15% = 23550

And Since Market price is $20 and face value is $3 hence excess paid in capital is $17)

Retained Earnings

Dividend Payable - Preferred stock

(Dividend Payable on preferred stock recorded - $590000*6%)

Income summary

Retained Earnings

(Income is transferred to retained earnings)

Part 2 - Posting of balances

Part 3 - Statement of retained earnings

Karp Company

Retained Earning statement

Part 4 - Balance Sheet

Karp Company

Balance sheet (Partial)

Date	Accounts title	Debit amount	Credit
July 1	Retained Earnings	$141300
	Dividend Payable - Common stock		$141300
	(Dividend Payable recorded. Calculation - ($471000/3*$0.9)
August 1	Retained Earnings	$28000
	Accumulated Depreciation		$28000
	(Depreciation provided as it was understated)
September 1	Dividend Payable - common stock	$141300
	Cash		$141300
	(Entry for paying dividend recorded by closing dividend payable account)
December 1	Retained Earnings (23550*20)	$471000
	Common stock dividend - Distributable (23550*3)		$70650
	Paid in capital in excess of par value (23550*17)		$400350
	(Stock dividend recorded for :- Total Shares = $471000/3 = 157000 Stock Dividend = 157000 * 15% = 23550 And Since Market price is $20 and face value is $3 hence excess paid in capital is $17)
December 15	Retained Earnings Dividend Payable - Preferred stock (Dividend Payable on preferred stock recorded - $590000*6%)	$35400	$35400
December 15	Income summary Retained Earnings (Income is transferred to retained earnings)	$362000	$362000