Corporations: Dividends, Retained Earnings, and income Reporting

Before preparing financial statements for the current year, the chief accountant for Toso Company discovered the following errors in the accounts.

1. The declaration and payment of $50,000 cash dividend was recorded as a debit to interest Expense $50,000 and a credit to Cash $50,000.
2. A 10% stock dividend (1,000 shares) was declared on the $10 par value stock when the market price per share was $18. The only entry made was Stock Dividends (Dr.) $10,000 and Dividend Payable (Cr.) $10,000. The shares have not been issued.
3. A 4-for-1 stock split involving the issue of 400,000 shares of $5 par value common stock for 100,000 shares of $20 par value common stock was recorded as a debit to Retained Earnings $2,000,000 and a credit to common stock $2,000,000.

Instructions

Prepare the correcting entries at December 31.

Solution