Question

E14-1 On January 1, Guillen Corporation had 95,000 shares of no-par common stock issued and outstanding. The stock has a stated value of $5 per share. During the year, the dividends еnt following occurred. Аpr. 1 Issued 25,000 additional shares of common stock for $17 per share. June 15 Declared a cash dividend of $1 per share to stockholders of record on June 30. Paid the $1 cash dividend. July 10 1 Dec. Issued 2,000 additional shares of common stock for $19 per share. 15 Declared a cash dividend on outstanding shares of $1.20 per share to stockholders of record on December 31. Instructions (a) Prepare the entries to record these transactions. (b) How are dividends and dividends payable reported in the financial statements pre- pared at December 31? E14-2 Knudsen Corporation was organized on January 1, 2016. During its first year, the corporation issued 2,000 shares of $50 par value preferred stock and 100,000 shares of $10 par value common stock. At December 31, the company declared the following cash divi- dends: 2016, $5,000; 2017, $12,000; and 2018, $28,000. ds to a stock Instructions (a) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 6% and noncumulative (b) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 7% and cumulative. (c) Journalize the declaration of the cash dividend at December 31, 2018, under part (b). ds E14-3 On January 1, 2017. Frontior stand:

E14-1 & E14-2

Answer 1

E14-1:

(a)

Credit | Date Apr. 1 Debit 425,000 Account title Cash (25,000x$17) Common stock (25,000 x $5) Paid in capital in excess of stated value-common stock 125,000 300,000 120,000 June. 15 Cash dividend (95000+25000) $1 Dividend payable 120,000 July. 10 120,000 Dividend payable Cash 120,000 Dec. 1 38,000 Cash (2,000x$19) Common stock (2,000 x $5) Paid in capital in excess of stated value-common stock 10,000 28,000 Dec. 15 146,400 Cash dividend (95000+25000+2000)x$1.20 Dividend payable 146,400

(b)

Cash dividend of (120,000+146,400) $266,400 will be reported on the statement of retained earnings. Cash dividend has a decreasing effect on the statement of retained earnings. Dividend payable of $146,400 will be reported as current liabilities under asset section of the balance sheet.

E14-2

| B C F G Preferred dividend to be paid each year = 2,000 shares x $50 x 6% = $6,000 Allocation of Allocation of Total dividend Preferred dividend common stock $5,000 $5,000 $ 12,000 $ 6,000 $6,000 $ 28,000 $ 6,000 $ 22,000 2016 2017 2018 SO (b) Preferred dividend to be paid each year = 2,000 shares x $50 x 7% = $7,000 Total dividend 2016 2017 2018 $5,000 $ 12,000 $ 28,000 Allocation of Allocation of Preferred dividend Common stock $5,000 $0 $ 9,000 $3,000 $ 7,000 $ 21,000

Working note:

A B co Preferred dividend to be paid each year = 2,000 shares x $50 x 6% = $6,000 WN Total dividend Allocation of Preferred dividend Allocation of Common stock 5000 5000 12000 28000 6000 =D6-E6 =D7-E7 2018 6000 ESCOVO Preferred dividend to be paid each year = 2,000 shares x $50 x 7% = $7,000 Total dividend Allocation of Preferred dividend Allocation of Common stock 2016 2017 2018 5000 12000 28000 5000 =7000+2000 7000 =D14-E14 =D15-E15

(c)

Credit Debit 28,000 Date Account title Dec. 31, 2018 Cash dividend Dividend payable-Preferred Dividend payable-Common 7,000 21,000