The stockholders’ equity accounts of Karp Company at January 1, 2014, are as fol

Question

The stockholders’ equity accounts of Karp Company at January 1, 2014, are as follows.

Preferred Stock, 6%, $50 par $580,000

Common Stock, $7 par 1,099,000

Paid-in Capital in Excess of Par—Preferred Stock 190,900

Paid-in Capital in Excess of Par—Common Stock 292,200

Retained Earnings771,400

There were no dividends in arrears on preferred stock. During 2014, the company had the following transactions and events.

July 1 Declared a $0.60 cash dividend per share on common stock. Aug. 1 Discovered $26,900 understatement of 2013 depreciation on equipment. (Ignore income taxes.) Sept. 1 Paid the cash dividend declared on July 1. Dec. 1 Declared a 15% stock dividend on common stock when the market price of the stock was $17 per share. 15 Declared a 6% cash dividend on preferred stock payable January 15, 2015. 31 Determined that net income for the year was $385,100. 31 Recognized a $201,000 restriction of retained earnings for plant expansion.

Explanation / Answer

Provision for Dividend   A/c Dr

Date Account Title and description Debit Credit 01-Jul Dividend     A/c                                      Dr $94200 To Provision for Dividend $94200 01-Aug Prior period expenses-Depreciation A/c Dr $26900 To Equipment A/C $26900 01-Sep

Provision for Dividend   A/c Dr

$94200 To Cash $94200 01-Dec Dividend A/c Dr $164850 To Provision for Dividend $164850 15-Dec Preferred Dividend A/c Dr $34800 To Provision for Preferred Dividend $34800 31-Dec Net Income Dr $1,58,550 To Retained Earnings $1,58,550 31-Dec Net Income Dr $94200 To Dividend-cash $94200 31-Dec Net Income Dr $199650 To Dividend-Common Stock $164850 To Preferred Dividend A/c              $34800

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