Correcting entries
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Before preparing financial statements for the current year, the chief accountant for Reynolds Company discovered the following errors in the accounts.
-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.
-A 10% stock dividend (1,000 shares) was declared on the $10 par value stock when the market value per share was $18. The only entry made was: Retained Earnings (Dr.) $10,000 and Dividend Payable (Cr.) $10,000.The -shares have not been issued.
-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
When preparing the correcting entries for December 31 I do not know where I went wrong (as seen in the attachment). Could you explain the method of reasoning for the 2nd error in the account as well. thank you
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Solution Summary
The solution explains the correcting entries required for the errors
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