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).
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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