Question

The books of Headland Corporation carried the following account balances as of December 31, 2020.

Cash		$ 190,000
Preferred Stock (6% cumulative, nonparticipating, $50 par)		316,000
Common Stock (no-par value, 284,000 shares issued)		1,420,000
Paid-in Capital in Excess of Par—Preferred Stock		140,000
Treasury Stock (common 2,700 shares at cost)		31,700
Retained Earnings		99,500

The company decided not to pay any dividends in 2020.

The board of directors, at their annual meeting on December 21, 2021, declared the following: “The current year dividends shall be 6% on the preferred and $0.30 per share on the common. The dividends in arrears shall be paid by issuing 1,580 shares of treasury stock.” At the date of declaration, the preferred is selling at $86 per share, and the common at $12 per share. Net income for 2021 is estimated at $73,600.

(a) Prepare the journal entries required for the dividend declaration and payment, assuming that they occur simultaneously. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 3,487.)

(b) Could Headland Corporation give the preferred stockholders 2 years’ dividends and common stockholders a 30 cents per share dividend, all in cash?

YES OR NO

Answer 1

Answer :-

a)

Date	Account titles and Explanation	Debit ($)	Credit($)
2021	For preferred dividend in arrear :
Dec.21	Retained earnings($316,000*6%)	18,960
	Treasury stock (1,580*12)		18,960
Dec.21	For Preffered Current year dividend :
	Retained earnings ($316,000*6%)	18,960
	Cash		18,960
Dec.21	For current share dividend :
	Retained earnings($284,000-2,700+1,580)*0.30	83,916
	Cash		83,916

b)

Yes.

Particulars	Amount
Total available cash		$190,000
Less :
Preferred dividend in arrear	$18,960
Preferred current year dividend	$18,960
Current share dividend	$83,916	$121,836
Balance cash		$68,164