Question

question 2

Hanson Bank agrees to lend $ 250,000 to Mishin Corp. on May 1, 2020 and the company signs a $ 250,000, three-month, 6% note maturing on August 1, 2020.

Instructions

Prepare the journal entry to record the cash received by Mishin Corp. on May 1, the entry to record interest expense at Mishin’s year-end of July 31 and the entry at maturity of the note.

Question # 3

Dividends on preferred shares

At December 31, 2020, Russia Inc. has outstanding the following shares:

       5,000, $ 3.20, no par value preferred shares with a carrying value of $ 200,000, and 40,000 no par value common shares with a carrying value of $ 600,000.

No dividends have been paid since December 31, 2017. The corporation now desires to distribute $ 120,000 in dividends.

Instructions

Calculate how much the preferred and common shareholders will receive if the preferred shares are cumulative and fully participating.

Answer 1

	Answer of Question- 2
	Journal Entries:
	Date	Particulars	Debit	Credit
	May 1 ,2020	Cash	2,50,000
		To 6% Note payable- Hanson Bank		2,50,000
	July 31, 2020	Interest Expense	3,750
		To Interest payable on 6% note		3,750
		(250,000 x 6% x 3/12 )
	August 1 ,2020	6% Note Payable- Hanson Bank	2,50,000
		Interest payable on 6% note	3,750
		To Cash		2,53,750

	Answer of Question- 3
	Particulars	Preferred	Common	Total
	Dividends in arrears ( 5,000 x 3.20 x 2)	32,000	-	32,000
	Current Year Dividend (5,000 x 3.20) 1 : 3 ratio	16,000	48,000	64,000
	Paricipating Dividend ( 1 : 3 )	6,000	18,000	24,000
		54,000	66,000	1,20,000
	Ratio of participation = 200,000 : 600,000
	= 1 : 3