Question

Sleep Corporation was organized on January 1, 2017. During its first year, the corporation issued 40,000...

Sleep Corporation was organized on January 1, 2017. During its first year, the corporation issued 40,000 shares of $5 par value preferred stock and 400,000 shares of $1 par value common stock. At December 31, the company declared the following cash dividends:

                        2017                            $ 6,000

                        2018                            $30,000

                        2019                            $60,000

Instructions

(a)   Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 4% and not cumulative.

(b)   Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 6% and cumulative.

(c)   Journalize the declaration of the cash dividend at December 31, 2019 using the assumption of part (b).

Homework Answers

Answer #1

Answer-

Annual preferred dividends = Number of preferred shares x Par value per preferred share x Dividend rate

= 40,000 x 5 x 4%

= $8,000

   Preferred    Common Total
2017 $6,000 0 $6,000
2018 $8,000 $22,000 $30,000
2019 $8,000 $52,000 $60,000

b-

Preferred Common Total
2017 $6,000.00 $6,000.00
(40000*5*6%)=12000
2018 $18,000.00 $12,000.00 $30,000.00
(12000+6000) (30000-18000)
2019 $12,000.00 $48,000.00 $60,000.00
(60000-12000)

3) Journal entry

Cash dividend 60000   
Preferred dividend payable 12000
Common dividend payable 48000
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