Question

On January 1, 2016, Kittson Company had a retained earnings balance of $218,600. It is subject to a 30% corporate income tax rate. During 2016, Kittson earned net income of $67,000, and the following events occurred:

Oct. 1	Cash dividends of $3 per share on 4,000 shares of common stock were declared.
Oct. 10	October 1 declaration of dividends was paid.
Nov. 1	A small stock dividend was declared. The dividends consisted of 600 shares of $10 par common stock. On the date of declaration, the market price of the company’s common stock was $36 per share.
Nov. 10	November 1 declaration of dividends was paid.
Dec. 1	The company recalled and retired 500 shares of $100 par preferred stock. The call price was $125 per share; the stock had originally been issued for $110 per share.
Dec. 31	The company discovered that it had erroneously recorded depreciation expense of $45,000 in 2015 for both financial reporting and income tax reporting. The correct depreciation for 2015 should have been $20,000. This is considered a material error.

Required:

1.	Prepare journal entries to record Kittson Company’s transactions during 2016.
2.	Prepare Kittson’s statement of retained earnings for the year ended December 31, 2016.

CHART OF ACCOUNTS
Kittson Company
General Ledger
ASSETS 111 Cash 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Equipment 189 Accumulated Depreciation LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Revenue 261 Income Taxes Payable 271 Dividends Payable EQUITY 305 Preferred Stock 311 Common Stock 315 Common Stock to be Distributed 321 Additional Paid-in Capital on Preferred Stock 324 Additional Paid-in Capital from Stock Dividend 331 Retained Earnings	REVENUE 411 Sales Revenue EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense

Amount Descriptions
Adjusted Retained Earnings, January 1, 2016
Cash Dividends
Correction of 2015 Depreciation Expense, net
Net Income
Reduction of Retained Earnings due to Retirement of Preferred Stock
Retained Earnings, as Previously Reported, January 1, 2016
Retained Earnings, December 31, 2016
Stock Dividend

Answer 1