P12-6B The post-closing trial balance of Chen Corporation at December 31, 2008, contains

Price: $2.50


The post-closing trial balance of Chen Corporation at December 31, 2008, contains
the following stockholders’ equity accounts.

Preferred Stock (15,000 shares issued)				750000
Common Stock (250,000 shares issued)				2,500,000
Paid-in Capital in Excess of Par Value—Preferred				250,000
Paid-in Capital in Excess of Stated Value—Common				400,000
Common Stock Dividends Distributable				250,000
Retained Earnings				902,000

A review of the accounting records reveals the following.
1. No errors have been made in recording 2008 transactions or in preparing the closing entry
for net income.
2. Preferred stock is $50 par, 8%, and cumulative; 15,000 shares have been outstanding since
January 1, 2007.
3. Authorized stock is 20,000 shares of preferred, 500,000 shares of common with a $10 par value.
4. The January 1 balance in Retained Earnings was $1,170,000.
5. On July 1, 20,000 shares of common stock were sold for cash at $16 per share.
6. On September 1, the company discovered an understatement error of $90,000 in computing
depreciation in 2007. The net of tax effect of $63,000 was properly debited directly to
Retained Earnings.
7. A cash dividend of $250,000 was declared and properly allocated to preferred and common
stock on October 1. No dividends were paid to preferred stockholders in 2007.
8. 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.
9. Net income for the year was $495,000.
10. On December 31, 2008, 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 the year.
(b) Prepare a retained earnings statement for the year.
(c) Prepare a stockholders’ equity section at December 31.
(d) Compute the earnings per share of common stock using 240,000 as the weighted average
shares outstanding for the year.
(e) Compute the allocation of the cash dividend to preferred and common stock.