The stockholders' equity accounts of Solomon Corporation on January 1, 2016, contained the following balances: Preferred Stock

Question:

The stockholders' equity accounts of Solomon Corporation on January 1, 2016, contained the following balances:

Preferred Stock (10%, $50 par value, 4,000 shares authorized)

Issued and Outstanding, 1,700 Shares................................... $85,000

Paid-in Capital in Excess of Par Value-Preferred....................... 1,700......... $ 86,700

Common Stock ($20 par value, 30,000 shares authorized)

Issued and Outstanding, 15,000 Shares..................................................... 300,000

Retained Earnings.................................................................................207,200

Total Stockholders' Equity.................................................................. $593,900

Transactions affecting stockholders' equity during 2016 follow.

INSTRUCTIONS

1. Set up a ledger account (381) for Retained Earnings and record the January 1, 2016, balance.

2. Record the transactions in general journal form and post them to the Retained Earnings account only. Use the account titles in the chapter.

3. Prepare a statement of retained earnings for the year 2016.

DATE TRANSACTIONS

June 15 Declared a semiannual dividend of 5 percent on preferred stock, payable on July 15 to stockholders of record on June 30.

July 15 Paid the dividend on preferred stock.

Dec. 15 Declared a semiannual dividend of 5 percent on preferred stock, payable on January 15, 2017, to stockholders of record on December 31, 2016, and a cash dividend of $4 per share on common stock, payable on January 15, 2017, to stockholders of record on December 31, 2016. Make separate entries.

15 Declared a 10 percent common stock dividend to common stockholders of record on December 31, 2016. The new shares are to be issued on January 15, 2017. A fair value price of $25 per share is expected for the new shares of common stock.

Dec. 31 Created an "appropriation of retained earnings for contingencies" of $60,000 because of the poor economic outlook.

31 The Income Summary account contained a debit balance of $20,000. The board had anticipated a net loss for the year and no quarterly deposits of estimated income taxes were made, so income taxes may be ignored.

Analyze: If Solomon Corporation had not declared cash or stock dividends for common stockholders, what balance would be found in the unappropriated Retained Earnings account at December 31, 2016?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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College Accounting Chapters 1-30

ISBN: 978-0077862398

14th edition

Authors: John Price, M. David Haddock, Michael Farina

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