Page 551 - Accounting Principles (A Business Perspective)

13. Corporations: Paid-in capital, retained earnings, dividends, and treasury stock

Common stock - $20 par value $2,000,000
Sales, net 1,740,000
Selling and administrative expenses 320,000
Cash dividends declared and paid 120,000
Cost of goods sold 800,000
Depreciation expense 120,000
Interest revenue 20,000
Loss on write-down of obsolete inventory 40,000
Retained earnings (as of 2008/12/31) 2,000,000
Operating less on Candy Division up to point of sale in 2009 40,000
Loss on disposal of Candy Division 200,000
Earthquake loss 96,000
Cumulative negative effect on prior years' income of changing from 64,000
straight-line to an accelerated method of computing depreciation.
Assume the applicable federal income tax rate is 40 per cent. All of the items of expense, revenue, and loss are
included in the computation of taxable income. The earthquake loss resulted from the first earthquake experienced
at the company's location. In addition, the company discovered that in 2008 it had erroneously charged to expense
the USD 160,000 cost of a tract of land purchased that year and had made the same error on its tax return for
2008.
a. Prepare an income statement for the year ended 2009 December 31.

b. Prepare a statement of retained earnings for the year ended 2009 December 31.
Alternate problems
Alternate problem A The trial balance of Dex Corporation as of 2009 December 31, contains the following
selected balances:

Notes payable (17%, due 2011 May 1) $4,000,000
Allowance for uncollectible accounts 60,000
Common stock (without par value, $20 stated value; 300,000 shares 6,000,000
authorized, issued, and outstanding)
Retained earnings, unappropriated 500,000
Dividends payable (in cash, declared December 15 on preferred stock) 14,000
Appropriation for pending litigation 600,000
Preferred stock (6%, $200 par value; 3,000 shares authorized, issued,
and outstanding) 600,000
Paid-In Capital – Donations 400,000
Paid-In Capital in Excess of Par Value – Preferred 10,000
Present the stockholders' equity section of the balance sheet as of 2009 December 31.
Alternate problem B The stockholders' equity section of Carson Company's 2008 December 31, balance sheet
follows:
Stockholders' equity:
Paid-In Capital:
Common stock - $120 par value; authorized,
2,000 shares; issued and outstanding, 1,000
shares $120,000
Paid-in capital in excess of par value 6,000
Total paid-in capital $126,000
Retained earnings 48,000
Total stockholders' equity $174,000
On 2009 July 15, the board of directors declared a cash dividend of USD 12 per share, which was paid on 2009
August 1. On 2009 December 1, the board declared a stock dividend of 10 per cent, and the shares were issued on
2009 December 15. Market value of the stock was USD 144 on December 1 and USD 168 on December 15.
Prepare journal entries for these dividend transactions.
Alternate problem C The ledger of Falcone Company includes the following account balances on 2009
September 30:

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