Post-Closing Trial Balance Of Storey Corporation In December
The Post Closing Trial Balance Of Storey Corporation At December 31 2
The post-closing trial balance of Storey Corporation at December 31, 2015, contains the following stockholders’ equity accounts. Preferred Stock (14,900 shares issued) $745,000, Common Stock (242,300 shares issued) $2,907,600, Paid-in Capital in Excess of Par—Preferred Stock $242,800, Paid-in Capital in Excess of Par—Common Stock $412,200, Common Stock Dividends Distributable $290,760, and Retained Earnings $947,160.
A review of the accounting records reveals the following: No errors have been made in recording 2015 transactions or in preparing the closing entry for net income. Preferred stock is $50 par, 6%, and cumulative; 14,900 shares have been outstanding since January 1, 2014. Authorized stock is 19,900 shares of preferred and 484,600 shares of common with a $12 par value. The January 1 balance in Retained Earnings was $1,145,100. On July 1, 20,500 shares of common stock were issued for cash at $18 per share. On September 1, the company discovered an understatement error of $89,200 in computing depreciation in 2014, which overstated net income. The net of tax effect of $62,440 was properly debited directly to Retained Earnings. A cash dividend of $290,760 was declared and properly allocated to preferred and common stock on October 1. No dividends were paid to preferred stockholders in 2014. On December 31, a 10% common stock dividend was declared out of retained earnings on common stock when the market price per share was $18. Net income for the year was $591,400. On December 31, 2015, the directors authorized the disclosure of a $190,900 restriction of retained earnings for plant expansion.
Reproduce the Retained Earnings account for 2015
Below is a detailed calculation and the resulting Retained Earnings account for Storey Corporation for the year 2015, considering all the provided transactions and adjustments.
Retained Earnings Account for 2015
| Description | Debit | Credit |
|---|---|---|
| Opening balance, January 1, 2015 | $1,145,100 | |
| Net income for 2015 | $591,400 | |
| Correction of depreciation understatement (net of tax, reversed in 2015) | $62,440 | |
| Dividends declared October 1, 2015 | $290,760 | |
| Stock dividend declared (10% on common stock) | (Calculate below) | |
| Reclassification of dividends to dividends payable (distributable) | $290,760 | |
| Restrictions of retained earnings for plant expansion | $190,900 | |
| Ending balance, December 31, 2015 | $947,160 |
Step-by-step Calculation:
1. Starting Balance (January 1, 2015):
$1,145,100
2. Add Net Income for 2015:
Net income = $591,400
Subtotal: $1,145,100 + $591,400 = $1,736,500
3. Adjust for Depreciation Understatement Correction:
Since the depreciation correction was an error from 2014, its net tax effect ($62,440) was directly debited to Retained Earnings in 2014; thus, it does not impact 2015 retained earnings directly. Therefore, for 2015 calculations, no further adjustment is needed for this correction.
4. Deduct Dividends Declared:
Dividends declared = $290,760
Remaining balance before stock dividend: $1,736,500 - $290,760 = $1,445,740
5. Calculate Stock Dividend Distribution:
Stock dividend declared is 10% of the outstanding common stock. The number of shares outstanding on December 31, 2015, is 242,300 + 20,500 = 262,800 shares.
10% of 262,800 shares = 26,280 shares.
Market price per share = $18.
Value of stock dividend = 26,280 x $18 = $473,040.
This amount is transferred from Retained Earnings to Common Stock Dividends Distributable; since the stock dividend is a redistribution of earnings, it reduces Retained Earnings by this amount.
Remaining Retained Earnings: $1,445,740 - $473,040 = $972,700
6. Deduct Restricted Earnings for Plant Expansion:
Restricted amount = $190,900
Final Retained Earnings = $972,700 - $190,900 = $781,800
7. Final Retained Earnings Balance:
The calculated ending retained earnings for 2015 is approximately $781,800, aligning with the detailed adjustments and disclosures.
Conclusion:
The Retained Earnings account for 2015 reflects net income, dividends paid, stock dividends, adjustments for prior errors, and restrictions for planned expenditures. The stepwise processing underscores the importance of understanding how each transaction impacts the company's equity position and highlights the comprehensive nature of retained earnings reconciliation in accordance with generally accepted accounting principles (GAAP).
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