Question

In: Accounting

The books of Shamrock Corporation carried the following account balances as of December 31, 2020. Cash...

The books of Shamrock Corporation carried the following account balances as of December 31, 2020.

Cash $ 175,000
Preferred Stock (6% cumulative, nonparticipating, $50 par) 296,000
Common Stock (no-par value, 285,000 shares issued) 1,425,000
Paid-in Capital in Excess of Par—Preferred Stock 165,000
Treasury Stock (common 2,600 shares at cost) 30,600
Retained Earnings 107,700


The company decided not to pay any dividends in 2020.

The board of directors, at their annual meeting on December 21, 2021, declared the following: “The current year dividends shall be 6% on the preferred and $0.40 per share on the common. The dividends in arrears shall be paid by issuing 1,480 shares of treasury stock.” At the date of declaration, the preferred is selling at $77 per share, and the common at $12 per share. Net income for 2021 is estimated at $80,000.

(a) Prepare the journal entries required for the dividend declaration and payment, assuming that they occur simultaneously. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 3,487.)

Account Titles and Explanation

Debit

Credit

For preferred dividends in arrears:

For preferred current year dividend:

For common share dividend:


(b) Could Shamrock Corporation give the preferred stockholders 2 years’ dividends and common stockholders a 40 cents per share dividend, all in cash?

                                                          No OR Yes

PLEASE PROVIDE STEPS AND EXPLANATION WITH ANSWERS. THANK YOU!

Solutions

Expert Solution

Requirement (a):- Prepare the journal entries required for the dividend declaration and payment, assuming that they occur simultaneously.

Solution:-

Requirement (b):- Could Shamrock Corporation give the preferred stockholders 2 years’ dividends and common stockholders a 40 cents per share dividend, all in cash?

Solution:- Yes.

Total dividends are $149,072, while the available cash balance is 175,000.

Hence, Shamrock could give the entire dividend in cash.

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Thank You!!

ekkarill92 answered 2 years ago
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