Question

P15-7 (LO3) (Cash Dividend Entries) The books of Conchita Corporation carried the following account balances as of December 31, 2017. Cash $ 195,000 Preferred Stock (6% cumulative, nonparticipating, $50 par) 300,000 Common Stock (no-par value, 300,000 shares issued) 1,500,000 Paid-in Capital in Excess of Par—Preferred Stock 150,000 Treasury Stock (common 2,800 shares at cost) 33,600 Retained Earnings 105,000 The company decided not to pay any dividends in 2017. The board of directors, at their annual meeting on December 21, 2018, declared the following: “The current year dividends shall be 6% on the preferred and $.30 per share on the common. The dividends in arrears shall be paid by issuing 1,500 shares of treasury stock.” At the date of declaration, the preferred is selling at $80 per share, and the common at $12 per share. Net income for 2018 is estimated at $77,000. Instructions (a) Prepare the journal entries required for the dividend declaration and payment, assuming that they occur simultaneously. (b) Could Conchita Corporation give the preferred stockholders 2 years’ dividends and common stockholders a 30 cents per share dividend, all in cash?

Answer 1

ANSWER:-

Date	Accounts title	Dr	Cr
Dec 21 2015	Retained Earnings	$108,000
	For preferred current year dividend (300,000*6%)		$18,000
	For common share dividend (300,000*.3)		$90,000
	(being current year dividend paid)
	(6%*300000)+(300,000*$.3)
Dec 21 2015	For preferred current year dividend	$18,000
	For common share dividend (300,000*..)	$90,000
	Cash		$108,000
	(being current year dividend paid)
Dec 21 2015	Retained earnings	18,000
	For preferred dividend in arrear		18,000
	(for dividend in arrear declared)
Dec 21 2015	For preferred dividend in arrear	18,000
	Retained earnings	1800
	Treasury stock (1800*11)		$19,800
	(for dividend in arrear paid)
Ans b).	Cash available	$195,000
	Total dividends
	For preferred current year dividend	$18,000
	For preferred dividend in arrear	$18,000
	For common share dividend (300,000*.2)	$60,000
	Total dividends	$291,000
	Cash balance available after payment of dividend	$-96,000

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