On January 1, 2007 the Fastor Company had a retained

On January 1, 2007 the Fastor Company had a retained earnings balance of $218,600. It is subject to a 30% corporate income tax rate. During 2007 the company earned net income of $67,000, and the following events occurred:

1. Cash dividends of $3 per share on 4,000 shares of common stock were declared and paid.

2. A small stock dividend was declared and issued. The dividend consisted of 600 shares of $10 par common stock. On the date of declaration the market price of the company’s common stock was $36 per share.

3. The company recalled and retired 500 shares of $100 par preferred stock. The call price was $125 per share; the stock had originally been issued for $110 per share.

4. The company discovered that it had erroneously recorded depreciation expense of $45,000 in 2006 for both financial reporting and income tax reporting. The correct depreciation for 2006 should have been $20,000. This is considered a material error.


1. Prepare journal entries to record items 1 through 4.

2. Prepare Fastor Company’s statement of retained earnings for the year ended December 31, 2007.

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...
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...