The stockholders’ equity accounts of Karp Company at January 1,

The stockholders’ equity accounts of Karp Company at January 1, 2014, are as follows.

Preferred Stock, 6%, $50 par ................$600,000

Common Stock, $5 par .................... 800,000

Paid-in Capital in Excess of Par—Preferred Stock ......... 200,000

Paid-in Capital in Excess of Par—Common Stock ......... 300,000

Retained Earnings ..................... 800,000

There were no dividends in arrears on preferred stock. During 2014, the company had the following transactions and events.

July 1 Declared a $0.60 cash dividend per share on common stock.

Aug. 1 Discovered $25,000 understatement of 2013 depreciation on equipment.

(Ignore income taxes.)

Sept. 1 Paid the cash dividend declared on July 1.

Dec. 1 Declared a 15% stock dividend on common stock when the market price of the stock was $18 per share.

15 Declared a 6% cash dividend on preferred stock payable January 15, 2015.

31 Determined that net income for the year was $355,000.

31 Recognized a $200,000 restriction of retained earnings for plant expansion.


(a) Journalize the transactions, events, and closing entries for net income and dividends.

(b) Enter the beginning balances in the accounts, and post to the stockholders’ equity accounts. (Note: Open additional stockholders’ equity accounts as needed.)

(c) Prepare a retained earnings statement for the year.

(d) Prepare a stockholders’ equity section at December 31, 2014.


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