McLelland Industries had the following stockholders' equity balances:
When asked why the company's equity balances changed during the year, McLelland provided the following explanations:
Preferred stock--The market value of the shares rose during the year from $5 to $6. The increase was placed in an Investment in Preferred Stock account.
Common stock--The issuance of 200 shares for cash was recorded entirely in the account.
Additional paid-in capital--Cash dividends paid during the year were subtracted from this account.
Retained earnings--Net income of $12,000 was added to the account during the closing process. Also, the stock dividend taken from treasury stock (see below) was subtracted from the account.
Treasury stock--A 1% common stock dividend (280 shares when the market price was $30) was recorded using only the retained earnings and treasury stock accounts. The dividend was declared and distributed on the same day, so one entry was made.
a. Identify all errors in McLelland's treatment and prepare the incorrect entries that McLelland most likely made.
b. Prepare, if necessary, the correct entries that McLelland should have made.
c. Prepare a corrected stockholders' equity section as of December 31.

  • CreatedJuly 16, 2015
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