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, 6%, $50 par Common Stock, $7 par Paid-in Capital in Excess of Par- Preferred Stock Paid-in Capital in Excess of Par-Common Stock Retained Earnings $640,000 1,095,500 185,000 304,500 791,000 There were no dividends in arrears on preferred stock. During 2017, the company had the following transactions and events. July 1 Declared a $0.80 cash dividend per share on common stock. Aug. 1 Discovered $28,500 understatement of depreciation expense in 2016. (Ignore income taxes.) Sept. 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 Declared a 6% cash dividend on preferred stock payable January 15, 2018. 31 Determined that net income for the year was $392,000. 31 Recognized a $203,000 restriction of retained earnings for plant expansion

Solution

Preferred Stock, 6%, $50 par                   640,000 No of Common Stock                      12,800 Common Stock, $7 par                1,095,500 No of Common Stock                   156,500 Paid-in Capital in Excess of Par Value —Preferred Stock                   185,000 Paid-in Capital in Excess of Par Value —Common Stock                   304,500 Retained Earnings                   791,000 A JE i) July 1 Declared a $0.80 cash dividend on common stock. 01-Jul Retained Earnings 125200 [($1095500 ÷ $7) X $.80] Dividends Payable—Common Stock 125200 1aug Discovered $28,500 understatement of 2016 depreciation 01-Aug Retained Earnings 28500 Accumulated Depreciation 28500 Sept. 1 Paid the cash dividend declared on July 1 01-Sep Dividends Payable—Common Stock 125200 Bank 125200 01-Dec Dec. 1 Declared a 15% stock dividend on common stock when the market value of the stock was $20 per share Retained Earnings (156500shares *15% X $20) 469500 Common Stock Dividends Distributable (156500*.15 X $7) 164325 Paid-in Capital in Excess of Par Value—Common Stock (156500*.15 X $13) 305175 15-Dec Declared a 6% cash dividend on preferred stock payable Retained Earnings 38400 [12800X $50*6%] Dividends Payable—Common Stock 38400 31-Dec Income Summary 392000 Retained Earnings 392000 Preferred Stock Date Explanation Debit Credit Balance Jan. 1 Balance 640,000 Common Stock Date Explanation Debit Credit Balance Jan. 1 Balance 1,095,500 Common Stock Dividends Distributable Date Explanation Debit Credit Balance Dec. 1 164325 164325 Paid-in Capital in Excess of Par Value—Preferred Stock Date Explanation Debit Credit Balance Jan. 1 Balance 185,000 Paid-in Capital in Excess of Par Value—Common Stock Date Explanation Debit Credit Balance Jan. 1 Balance 304,500 Dec. 1 305,175 609,675 Retained Earnings Date Explanation Debit Credit Balance Jan. 1 Balance 791,000 July 1 Cash dividend—common 125,200 665,800 Aug. 1 Prior period adjustment—depreciation 28500 637,300 Dec. 1 Stock dividend— Common 469500 167,800 Dec. 15 Cash dividend— preferred 38400 129,400 Dec. 31 Net income 392,000 521,400 KARPCOMPANY Retained Earnings Statement For the Year Ended December 31, 2017 Balance, January 1, as reported 791000 Correction of 2009 depreciation 28,500 Balance, January 1, as adjusted 762,500 Add:   Net income 392,000 1,154,500 Less: Cash dividends—preferred 38400 Stock dividends—common 469500 Cash dividends—common 125200 633,100 Balance, December 31 521,400 (d) KARPCOMPANY Balance Sheet (Partial) as at 31.12.2017 Stockholders’ equity Paid-in capital Capital stock 6% Preferred stock, $50 par value, 12,800 shares issued 640000 Common stock, $7 par value, 156,500 shares issued $1,095,500 Common stock dividends distributable (23475 shares) 164,325 1,259,825 Total capital stock 1,899,825 Additional paid-in capital In excess of par value— preferred stock                   185,000 In excess of par value— common stock 609,675 Total additional paid-in capital 794,675 Total paid-in capital 2,694,500 Retained earnings (see Note B) 521,400 Total stockholders’ equity $3,215,900 Note B:Retained earnings is restricted for plant expansion, $203,000.