Question

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

1. The declaration and payment of $47,000 cash dividend was recorded as a debit to Interest Expense $47,000 and a credit to Cash $47,000.
2. A 10% stock dividend (1,100 shares) was declared on the $10 par value stock when the market price per share was $19. The only entry made was Stock Dividends (Dr.) $11,000 and Dividend Payable (Cr.) $11,000. The shares have not been issued.
3. A 4-for-1 stock split involving the issue of 354,000 shares of $5 par value common stock for 91,750 shares of $20 par value common stock was recorded as a debit to Retained Earnings $1,835,000 and a credit to Common Stock $1,835,000.

Required:
Prepare the correcting entries at December 31.

Answer 1

Oriole Company

Correcting Journal Entries:

1. Debit Dividends $47,000

Credit Interest Expense $47,000

To correct the error.

2. No corrections required

3. Debit Common Stock $1,835,000

Credit Retained Earnings $1,835,000

To correct the error.

Step-by-step explanation:

a) Data and Analysis:

1. Dividends $47,000 Interest Expense $47,000

2. No corrections required

3. Common Stock $1,835,000 Retained Earnings $1,835,000

b) When a stock split is done, there is no journal entry involving an amount of money. What is recorded is just a memo entry. The memo entry serves to notify that the number of Oriole shares and the par value per share have changed to reflect the reality.