Question

	Problem 4 - Dividend Calculations & Journal Entries for Equity
	Part A Directions: Shoreline Company has 10,000 shares outstanding of $50 par value, 5% cumulative preferred stock and 50,000 shares of $2 par value common stock. The company declared cash dividends of $110,000.
		Dividend Calculation #1: If no arrearage on the preferred stock exists, how much in total dividends and in dividends per share is paid to each class of stock?
		Dividend Calculation #2: If one year’s dividend arrearage on the preferred stock exists, how much in total dividends and in dividends per share is paid to each class of stock?
	Part B Directions: Prepare journal entries for the following 2016 equity related transactions.
		Feb 1	Issued 10,000 shares of $5 par value common stock at $30 cash per share.
		Jul 1	Issued 10,000 shares of $25 par value preferred stock at $120 cash per share
		Aug 1	Purchased back 3,000 shares of common stock at $31 cash per share.
		Oct 1	Resold 1,200 shares of treasury stock at $32 cash per share.
		Date	Description		Debit	Credit

Answer 1

Answer to Problem 4 Part A:

Preferred Stock:

Number of shares = 10,000
Par Value = $50 per share
Dividend Rate = 5%

Value of Preferred Stock = Number of shares * Par Value
Value of Preferred Stock = 10,000 * $50
Value of Preferred Stock = $500,000

Annual Dividend = Value of Preferred Stock * Dividend Rate
Annual Dividend = $500,000 * 5%
Annual Dividend = $25,000

Common Stock:

Number of shares = 50,000

Dividend declared = $110,000

Answer a.

Preferred Stock Dividend = $25,000

Preferred Stock Dividend per share = Preferred Dividend / Number of shares
Preferred Stock Dividend per share = $25,000 / 10,000
Preferred Stock Dividend per share = $2.50

Common Stock Dividend = Dividend declared - Preferred Stock Dividend
Common Stock Dividend = $110,000 - $25,000
Common Stock Dividend = $85,000

Common Stock Dividend per share = Common Stock Dividend / Number of shares
Common Stock Dividend per share = $85,000 / 50,000
Common Stock Dividend per share = $1.70

Answer b.

Preferred Stock Dividend = $25,000 + $25,000
Preferred Stock Dividend = $50,000

Preferred Stock Dividend per share = Preferred Dividend / Number of shares
Preferred Stock Dividend per share = $50,000 / 10,000
Preferred Stock Dividend per share = $5.00

Common Stock Dividend = Dividend declared - Preferred Stock Dividend
Common Stock Dividend = $110,000 - $50,000
Common Stock Dividend = $60,000

Common Stock Dividend per share = Common Stock Dividend / Number of shares
Common Stock Dividend per share = $60,000 / 50,000
Common Stock Dividend per share = $1.20

Answer to Problem 4 Part B: