Question

Loki Corporation earned net income of $90,000 during the year ended December 31 2016. On December...

Loki Corporation earned net income of $90,000 during the year ended December 31 2016. On December 15, Loki had declared the annual cash dividend on its $0.35 preferred shares (5,000 shares issued for $80,000) and a $0.40 per share cash dividend on its common shares (20,000 shares issued for $60,000). Loki then paid the dividends on January 4, 2017.

Journalize the following for Loki Corporation:

  • Declaring the cash dividends on December 15, 2016.
  • Paying the cash dividends on January 4, 2017.

Did Retained Earnings increase or decrease during 2016? If so, by how much?

Business   Accounting   
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Answer #1

Solution:

Journal Entries - Loki Corporation
Date Particulars Debit Credit
15-Dec-16 Dividends Dr [(5000*$0.35) + (20000*$0.40)] $9,750.00
      To Dividend Payable $9,750.00
(To record dividend declared)
4-Jan-17 Dividend Payable Dr $9,750.00
      To Cash $9,750.00
(To record dividend payment)

Retained earnings increased during 2016 by = Net Income - Dividend = $90,000 - $9,750 = $80,250

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