Question

Problem 15-07

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

Cash		$ 191,000
Preferred Stock (6% cumulative, nonparticipating, $50 par)		300,000
Common Stock (no-par value, 317,000 shares issued)		1,585,000
Paid-in Capital in Excess of Par—Preferred Stock		162,000
Treasury Stock (common 2,800 shares at cost)		32,700
Retained Earnings		110,000

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 $0.40 per share on the common. The dividends in arrears shall be paid by issuing 1,500 shares of treasury stock.” At the date of declaration, the preferred is selling at $76 per share, and the common at $12 per share. Net income for 2021 is estimated at $82,100.

(a) Prepare the journal entries required for the dividend declaration and payment, assuming that they occur simultaneously.

Account Titles and Explanation	Debit	Credit
For preferred dividends in arrears:
For preferred current year dividend:
For common share dividend:

(b) Could Bonita Corporation give the preferred stockholders 2 years’ dividends and common stockholders a 40 cents per share dividend, all in cash?

NoYes

Answer 1

Journal Entry- Bonita Corporation
Date	Accounts title	Debit	Credit
	For Preferred Dividend - Arrear
	Retained Earning   (300000*6%)	$18,000.00
	Treasury Stock		$18,000.00
	For Preferred Dividend - Current year
	Retained Earning	$18,000.00
	Cash		$18,000.00
	For Common Stock Dividend
	Retained Earning	$126,280.00
	Cash (317000-2800+1500)*0.40)		$126,280.00

b) Yes