Question

1.

At December 31, 2014, Mississippi Corp. has the following shares outstanding (all no par value):

150,000 common shares ......................................$ 1,150,000

$6 preferred, 5,000 shares ................................... $ 500,000
The preferred shares are cumulative and participating up to an additional 4%.
Dividends have not been paid since December 31, 2011.
Mississippi now wishes to declare a total cash dividend of $240,000.

Instructions

Prepare the entry for the dividend declaration, separating the dividend into the common and preferred portions. Show all calculations.

Also, what is the answer to this:

Stock dividends and stock splits are common forms of corporate share distribution to shareholders. Consider each of the numbered statements below, and decide whether it:

A. Applies to both stock dividends and stock splits. B. Applies to stock splits only.
C. Applies to stock dividends only.
D. Applies to neither.

(In each instance, assume the issuing corporation has only one class of shares.)

5. Retained earnings in the amount of the distribution are transferred to share capital.

Answer 1

Calculation of Preferred shares dividend ;-

Particulars	Calculation	Dividend Amount($)
Arrears	(5000*$6*2 year)	60000
Current Year Dividend	(5000*$6)	30000
Participating Dividend	($500000*4%)	20000
Total Dividend		110000

Common Shares Dividend ;-

= Total Cash Dividend - Preferred Shares Dividend

= $240000 - $110000

Common Shares Dividend = $130000

Journal Entry :-

Particulars	Debit($)	Credit($)
Retained Earnings	240000
Dividends Payable - Preferred Shares		110000
Dividends Payable - Common Shares		130000