Question

Homestead Oil Corp. was incorporated on January 1, 2016, and issued the following stock for cash:

  

700,000 shares of no-par common stock were authorized; 150,000 shares were issued on January 1, 2016, at $18.00 per share.

250,000 shares of $110 par value, 8.00% cumulative, preferred stock were authorized, and 71,000 shares were issued on January 1, 2016, at $140 per share.

Net income for the years ended December 31, 2016 and 2017, was $1,450,000 and $2,490,000, respectively.

No dividends were declared or paid during 2016. However, on December 28, 2017, the board of directors of Homestead declared dividends of $1,600,000, payable on February 12, 2018, to holders of record as of January 19, 2018.

Prepare the journal entries to record each of the below transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

The issuance of common stock and preferred stock on January 1, 2016.

The declaration of dividends on December 28, 2017.

The payment of dividends on February 12, 2018.

Note: Enter debits before credits.

	Date General Journal Debit Credit January 01, 2016

b. Of the total amount of dividends declared during 2017, how much will be received by preferred shareholders?

	Dividends received by Preferred shareholders

Answer 1

Date	Account Titles and Explanation	Debit	Credit
Jan 01, 2016	Cash	12640000		= (150000*18+71000*140)
	Common Stock		2700000	= 150000*18
	Preferred Stock		7100000	= 71000*100
	Additional Paid-In Capital-Preferred		2840000	= 71000*40
A.	(To record the stock issuances)
Dec 28, 2016	Retained Earnings	1600000
	Dividends Payable		1600000
	(To record the declaration of dividends)
Feb 12, 2017	Dividends Payable	1600000
	Cash		1600000
B.	(To record the payment of dividends)
	Preferred Shareholders dividend	(Preferred Shareholders Outstanding*Par value of preferred share*Dividend Rate)*2
		= (71000*100*8%)*2
		1136000
	Preferred Shareholders dividend IS $1,136,000.