The post-closing trial balance of Russo Company SpA at December 31, 2017, contains the following equity accounts.
Share Capital-Preference (12,000 shares issued)..........€ 600,000
Share Capital-Ordinary (250,000 shares issued) ..........2,500,000
Share Premium-Preference.......................................250,000
Share Premium-Ordinary........................................425,000
Ordinary Share Dividends Distributable.......................250,000
Retained Earnings...............................................1,078,000
A review of the accounting records reveals the following.
1. No errors have been made in recording 2017 transactions or in preparing the closing entry for net income.
2. Preference shares are €50 par, 8%, and cumulative; 12,000 shares have been outstanding since January 1, 2016.
3. Authorized shares are 20,000 preference shares, 500,000 ordinary shares with a €10 par value.
4. The January 1 balance in Retained Earnings was €1,200,000.
5. On July 1, 20,000 ordinary shares were issued for cash at €16 per share.
6. On September 1, the company discovered an understatement error of €60,000 in computing depreciation in 2016. The net of tax effect of €42,000 was properly debited directly to Retained Earnings.
7. A cash dividend of €240,000 was declared and properly allocated to preference and ordinary shares on October 1. No dividends were paid to preference shareholders in 2016.
8. On December 31, a 10% ordinary share dividend was declared out of retained earnings on ordinary shares when the market price per share was €17.
9. Net income for the year was €585,000.
10. On December 31, 2017, 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 2017.
(b) Prepare a retained earnings statement for 2017.
(c) Prepare an equity section at December 31, 2017.
(d) Compute the allocation of the cash dividend to preference and ordinary shares.