Question

1. Marigold Inc., has 1300 shares of 6%, $50 par value, cumulative preferred stock and 49751 shares of $1 par value common stock outstanding at December 31, 2019, and December 31, 2020. The board of directors declared and paid a $2500 dividend in 2019. In 2020, $10600 of dividends are declared and paid. What are the dividends received by the common stockholders in 2020?
a. $2800

b. $5300

c. $6400

d. $3900

On January 1, 2020, Sheridan Company issued $3900000, 10-year, 4% bonds at 102. Interest is payable annually on January 1. The journal entry to record this transaction on January 1, 2020 is

a. premium on bonds payable 78000

cash 3900000

bonds payable 3978000

b. cash 3978000

bonds payable 3900000

premium on bonds payable 78000

c. cash 3900000

bonds payable 3900000

d. cash 3978000

bonds payable 3978000

3. Sheffield Company acquires 74, 8%, 5 year, $1,000 Community bonds on January 1, 2020 for $74000.

Assume Community pays interest on January 1. The journal entry at December 31, 2020 would include a credit to

a. Interest Receivable for $5920.

b. Interest Revenue for $5920.

c. Interest Receivable for $2960.

d. Accrued Expense for $5920.

Answer 1

Solution 1:

Annual preferred dividend = 1300*$50*6% = $3,900

Dividend paid to preferred stock in 2019 = $2,500

Dividend in arrears in 2019 = $3,900 - $2,500 = $1,400

Dividend paid to preferred stock in 2020 = $3,900 + $1,400 = $5,300

Dividend paid to common stockholders in 2020 = $10,600 - $5,300 = $5,300

Hence option b is correct.

Solution 2:

The journal entry to record this transaction on January 1, 2020 is:

cash 3978000

bonds payable 3900000

premium on bonds payable 78000

Hence option b is correct.

Solution 3:

The journal entry at December 31, 2020 would include a credit to "Interest Revenue for $5920."

Hence option b is correct.