The post-closing trial balance of Storey Corporation at December 31, 2017, conta

Question

The post-closing trial balance of Storey Corporation at December 31, 2017, contains the following stockholders' equity accounts Preferred Stock (15,600 shares issued) Common Stock (253,000 shares issued) Paid-in Capital in Excess of Par-Preferred Stock Paid-in Capital in Excess of Par-Common Stock Common Stock Dividends Distributable Retained Earnings $780,000 3,795,000 253,000 386,000 379,500 885,080 A review of the accounting records reveals the following. 1. No errors have been made in recording 2017 transactions or in preparing the closing entry for net income. 2. Preferred stock is $50 par, 690, and cumulative; 15,600 shares have been outstanding since January 1, 2016. 3. Authorized stock is 20,600 shares of preferred, 506,000 shares of common with a $15 par value 4. The January 1 balance in Retained Earnings was $1,140,000 5. On July 1, 19,600 shares of common stock were issued for cash at $16 per share. 6. On September 1, the company discovered an understatement error of $86,600 in computing salaries and wages expense in 2016. The net of tax effect of $60,620 was properly debited directly to Retained Earnings. 7. A cash dividend of $379,500 was declared and properly allocated to preferred and common stock on October 1. No dividends were paid to preferred stockholders in 2016. 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. 8· 9. Net income for the year was $590,000. 10. On December 31, 2017, the directors authorized disclosure of a $194,000 restriction of retained earnings for plant expansion. (Use Note X.)

Explanation / Answer

Solution a:

Retained Earnings Particulars Debit Particulars Credit Salaries and Wage expenses $60,620.00 Beginning balance $1,140,000.00 Cash dividend $379,500.00 Income summary $590,000.00 Stock dividend (253000*10%*$16) $404,800.00 Ending balance $885,080.00 Total $1,730,000.00 Total $1,730,000.00

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