Question

The annual report for Sneer Corporation disclosed that the company declared and paid preferred dividends in the amount of $190,000 in the current year. It also declared and paid dividends on common stock in the amount of $2.90 per share. During the current year, Sneer had 1 million common shares authorized; 390,000 shares had been issued; and 181,000 shares were in treasury stock. The opening balance in Retained Earnings was $890,000 and Net Income for the current year was $390,000.

Required:

1.

Prepare journal entries to record the declaration, and payment, of dividends on (a) preferred and (b) common stock. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) 1 Record the declaration of a cash dividend of $190,000 to the preferred stockholders. 2 Record the payment of the cash dividend to the preferred stockholders. 3 Record the declaration of a cash dividend of $2.90 per share to the common stockholders payable on the shares outstanding. 4 Record the payment of the cash dividend to the common stockholders. Using the information given above, prepare a statement of retained earnings for the year ended December 31. 3. Prepare a journal entry to close the dividends account. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) Record the entry to close the dividends account.

Answer 1

Solution 1:

Journal Entries
No.	Particulars	Debit	Credit
1	Cash Dividend Dr	$1,90,000
	To Dividend Payable		$1,90,000
2	Dividend Payable Dr	$1,90,000
	To Cash		$1,90,000
3	Cash Dividend Dr [(390000-181000) * $2.90]	$6,06,100
	To Dividend Payable		$6,06,100
4	Dividend Payable Dr	$6,06,100
	To Cash		$6,06,100

Solution 2:

Statement of Retained earnings
Beginning Retained earnings	$8,90,000
Add: Net Income	$3,90,000
Less: Dividends paid (190000+606100)	-$7,96,100
Ending Retained earnings, June 30, 2017	$4,83,900

Solution 3:

Journal Entry to close dividend account
No.	Particulars	Debit	Credit
1	Retained Earnings Dr ($190000+$606100)	$7,96,100
	To Cash Dividends		$7,96,100
	(To record closing entry for dividend)