Question - The post-closing trial balance of Chen Corporation at December 31, 2011, contains the following stockholders' equity accounts.
Preferred Stock (15,000 shares issued) $ 750,000
Common Stock (250,000 shares issued) 2,500,000
Paid-in Capital in Excess of Par Value-Preferred 250,000
Paid-in Capital in Excess of Par Value-Common 400,000
Common Stock Dividends Distributable 250,000
Retained Earnings 902,000
A review of the accounting records reveals the following.
1. No errors have been made in recording 2011 transactions or in preparing the closing entry for net income.
2. Preferred stock is $50 par, 8%, and cumulative; 15,000 shares have been outstanding since January 1, 2010.
3. Authorized stock is 20,000 shares of preferred, 500,000 shares of common with a $10 par value.
4. The January 1 balance in Retained Earnings was $1,170,000.
5. On July 1, 20,000 shares of common stock were sold for cash at $16 per share.
6. On September 1, the company discovered an understatement error of $90,000 in computing depreciation in 2010. The net of tax effect of $63,000 was properly debited directly to Retained Earnings.
7. A cash dividend of $250,000 was declared and properly allocated to preferred and common stock on October 1. No dividends were paid to preferred stockholders in 2010.
8. On December 31, a 10% common stock dividend was declared out of retained earnings on common stock when the market price per share was $18.
9. Net income for the year was $495,000.
10. On December 31, 2011, the directors authorized disclosure of a $200,000 restriction of retained earnings for plant expansion. (Use Note X.)
Instructions -
(a) Reproduce the Retained Earnings account for the year.
(b) Prepare a retained earnings statement for the year.
(c) Prepare a stockholders' equity section at December 31.
(d) Compute the earnings per share of common stock using 240,000 as the weighted-average shares outstanding for the year.
(e) Compute the allocation of the cash dividend to preferred and common stock.