Question

P14.2A Financial Statement Prepare stockholders' equity section, and compute allocation of dividends and earnings per share. (LOL. 2) The post-closing trial balance of Storey Corporation at December 31, 2020, contains the following stockholders' equity accounts. Preferred Stock (15,000 shares issued) $750,000 Common Stock (250,000 shares issued) 2,500,000 Paid-in Capital in Excess of Par-Preferred Stock 250,000 Paid-in Capital in Excess of Par-Common Stock 400,000 Common Stock Dividends Distributable 250,000 Retained Earnings 1,042,000 A review of the accounting records reveals the following. 1. No errors have been made in recording 2020 transactions or in preparing the closing entry for net income. 2. Preferred stock is S50 par, 6%, and cumulative; 15,000 shares have been outstanding since January 1, 2019. 3. Authorized stock is 20,000 shares of preferred, 500,000 shares of common with a $10 par value. 4. The January 1 balance in Retained Earnings was $1,170,000. 5. On July 1, 20,000 shares of common stock were issued for cash at $16 per share 6. On September 1, the company discovered an understatement error of S90,000 in computing salaries and wages expense in 2019. The net of tax effect of $63,000 was properly debited directly to Retained Earnings. 7. A cash dividend of $250,000 was declared and properly allocated to preferred and common stock on October 1. No dividends were paid to preferred stockholders in 2019. 8. On December 31, a 10% common stock dividend was declared out of retained earnings on common stock when the market price per share was $16. 9. Net income for the year was 9585,000. 10. On December 31, 2020, the directors authorized disclosure of a $200,000 restriction of retained earnings for plant expansion. (Use Note X.) Instructions (a) Reproduce the Retained Earnings account (T-account) for 2020. (b) Prepare a retained earnings statement for 2020. Total stockholders' equity S5,192,000 (c) Prepare a stockholders' equity section at December 31, 2017. (d) Compute the allocation of the cash dividend to preferred and common stock

Answer 1

Part-A)

Retained Earnings

Sep-01	Prior Per. Adjustment	63,000	Jan-01	Balance	1,170,000
Dec-31	Cash Dividends	250,000	Dec-31	Net income	585,000
Dec-31	Stock Dividends	400,000
			Dec-31	Balance	1,042,000

Part-B)

Retained Earnings Statement
Balance, January 1, as reported		$1,170,000
Correction of overstatement of net income because of		-63,000
understatement of depreciation
Balance, January 1, as adjusted		1,107,000
Add: Net income		585,000
		1,692,000
Less: Cash dividends	250,000
Stock dividends	400,000	650,000
Balance, December 31		$1,042,000

Part-C)

Stockholders’ equity
Paid-in capital
Capital stock
6% Preferred stock, $50 par value, cumulative, 20,000 shares
authorized, 15,000 shares issued and Outstanding		750,000
Common stock, $10 par value, 500,000 shares authorized,
250,000 shares issued and outstanding	$2,500,000
Common stock dividends distributable	250,000	2,750,000
Total capital stock		3,500,000
Additional paid-in capital In excess of par— preferred stock	250,000
In excess of par— common stock	400,000
Total additional paid-in capital		650,000
Total paid-in capital		4,150,000
Retained earnings	1,042,000
Total stockholders’ equity		$5,192,000

Part-D)

Total cash dividend		250,000
Allocated to preferred stock
Dividend in arrears [15,000 X ($50 X 6%)]	45,000
Dividend	45,000	90,000
Remainder to common stock		160,000

Part-E)

15,000 * $50 * 6% = $45,000

($585,000 - $45,000) / 240,000 = $2.25