Cory Company’s shareholders’ equity on January 1, 2019, is a follows:
In January 2019, Cory recalled and retired the 8% preferred stock. This stock originally had been issued for $105 per share. In April, it declared and issued a 10% stock; dividend on the common stock; the stock was then selling for $16 per share. This was the only issuance of common or preferred stock during the year. During November, Cory reacquired as treasury stock 1,000 shares of its common stock at $18 per share (it uses the cost method for treasury stock). State law requires a restriction of retained earnings equal to the cost of all treasury shares held. Cory discloses this restriction by means of a note to the financial statements. In December, the annual cash dividends on the outstanding preferred stock and a $1 per share cash dividend on the outstanding common stock were declared and paid. At the end of December, net income of $87,000 was closed from Income Summary to Retained Earnings. During the year-end audit, it was found that two errors had been made during 2018 for both financial reporting and income tax reporting. First, depreciation on certain machinery in the amount of $10,000 was inadvertently omitted. Second, a mathematical mistake was made in the calculation of the accumulated depreciation related to the sale of equipment. Consequently, the reduction in accumulated depreciation and the amount of the gain recognized were both understated by $8,000. Roth errors are considered material. Cory has been subject to a 30% income tax rate for the past several years.
Required:
1.
Prepare necessary journal entry to record the given transaction.
Retained earnings: Retained earnings are that portion of profits which are earned by a company but not distributed to stockholders in the form of dividends. These earnings are retained for various purposes like expansion activities, or funding any future plans.
Prepare necessary journal entry to record the given transaction.
Date | Account Titles and explanation | Debit ($) | Credit ($) |
January | Preferred stock , 8%, $100 par | 100,000 | Â |
 |
Additional paid-in capital on preferred        stock | 5,000 |  |
 |
Retained earnings     | 11,000 |  |
 |     Cash |  | 116,000 |
 | ( To record 1,000 shares that were recalled and retired) |  |  |
 |  |  |  |
April | Retained earnings | 35,200 | Â |
 |
    Common stock to be distributed      |  | 22,000 |
 |
    Additional paid-in capital on common      stock |  | 13,200 |
 | (To record the declaration and issuance of stock dividend on common stock) |  |  |
 |  |  |  |
 | Common stock to be distributed | 22,000 |  |
 |     Common stock, $10 par |  | 22,000 |
 | (To record the issuance of common stock) |  |  |
 |  |  |  |
November | Treasury stock | 18,000 | Â |
 |     Cash |  | 18,000 |
 | (To record the treasury stock 1,000 shares on common being reacquired for $18) |  |  |
 |  |  |  |
December | Retained earnings | 10,500 | Â |
 |
    Dividend payable: preferred stock      |  | 10,500 |
 | (To record the declaration of annual cash dividend on preferred stock) |  |  |
 |  |  |  |
December | Retained earnings | 23,200 |
2.
Prepare the statement of retained earnings for the Company C for the year ended December 31, 2019 and also provide necessary notes to its financial statement for the year ended December 31, 2019.
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