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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Cory Company’s shareholders’ equity on January 1, 2019, is a follows:

Chapter 16, Problem 16P, Cory Companys shareholders equity on January 1, 2019, is a follows: In January 2019, Cory recalled

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. 1. Prepare journal entries to record the preceding transactions.
  2. 2. Prepare Cory's statement of retained earnings and any related notes to its financial statements for the year ended December 31, 2019.

1.

To determine

Prepare necessary journal entry to record the given transaction.

Explanation

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.

DateAccount Titles and explanationDebit ($)Credit ($)
JanuaryPreferred stock , 8%, $100 par 100,000 
 

Additional paid-in capital on preferred   

     stock (1,000×$5[$105$100]) 

5,000 
 

Retained earnings

    (500×$15[$125$110])

11,000 
     Cash (1,000×$116) 116,000
 ( To record 1,000 shares that were recalled and retired)  
    
AprilRetained earnings [22,000 shares × 10%×$16]35,200 
 

    Common stock to be distributed

     [2,200 shares×$10]

 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)  
    
NovemberTreasury stock [1,000 shares×$18]18,000 
     Cash 18,000
 (To record the treasury stock 1,000 shares on common being reacquired for $18)  
    
DecemberRetained earnings10,500 
 

    Dividend payable: preferred stock

     [1,500 shares×7%×$,100]

 10,500
 (To record the declaration of annual cash dividend on preferred stock)  
    
DecemberRetained earnings23,200

2.

To determine

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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