The following information is available for Paper Inc.:

Beginning retained earnings                                             $600,000

Cash dividends declared                                                      30,000

Net income for 2014                                                           140,000

Stock dividend declared                                                       10,000

Understatement of last year’s depreciation expense           30,000

Instructions

Based on the preceding information, prepare a retained earnings statement for 2014

PAPER INC.

Retained Earnings Statement for the Year, 2014 Opening Balance of Retained Earnings                       600000 Add Net Income                                                           140000 Less Understatement of Depreciation                          -30000 Less Cash Dividends Declared                                    -30000 Less Stock Dividends Declared                                   -10000 Closing Balance of Retained Earnings                         670000 Notes: 1) Understatement of last year’s depreciation would have resulted in a decrease in an overall expense and accordingly an increase in the net income for the last year. Therefore, an adjustment is required in this year’s net income to correct the last year’s error. 2) Cash Dividends are distributed first from the net income from the current year. 3) Stock dividends are distrubuted from the retained earnings.

Retained Earnings Statement

For the Year Ended December 31, 2014

PROBLEM 3

Banner Corporation was organized on January 1, 2013. During its first year, the corporation issued 40,000 shares of $5 par value preferred stock and 400,000 shares of $1 par value common stock. At December 31, the company declared the following cash dividends:

2013                            $ 7,000

2014                            $20,000

2015                            $60,000

Instructions

(a)   Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 4% of the $5 par value and is not cumulative.

(b)   Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 6% of the $5 par value and is cumulative.

c)     Journalize the declaration of the cash dividend at December 31, 2015

(a)                              Preferred               Common                  Total

2013

2014

2015

 

(b)                              Preferred               Common                  Total

2013

2014

2015

(c)

Date

Account

Debit

Credit