Question

P15.7 (LO 3) (Cash Dividend Entries) The books of Conchita Corporation carried the following account balances as of December 31, 2020. $ 195,000 Cash Preferred Stock (6% cumulative, nonparticipating, $50 par) Common Stock (no-par value, 300,000 shares issued) Paid-in Capital in Excess of Par-Preferred Stock Treasury Stock (common 2,800 shares at cost) Retained Earnings 300,000 1,500,000 150,000 33,600 105,000 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 $.30 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 $80 per share, and the common at $12 per share. Net income for 2021 is estimated at $77,000. Instructions a. Prepare the journal entries required for the dividend declaration and payment, assuming that they occur simultaneously. 46 CHAPTER 15 Stockholders' Equity b. Could Conchita Corporation give the preferred stockholders 2 years' dividends and common stock- holders a 30 cents per share dividend, all in cash?

Answer 1

Solution:-

a.

Date	Particulars	Debit	Credit	Working
21/12/2021	Retained Earnings	108,000		(6% * 300,000) + (.30 * 300,000)
	For preferred current year dividend		18,000	(6% * 300,000)
	For common share dividend		90,000	(0.30 * 300,000)
21/12/2021	For preferred current year dividend	18,000
	For common share dividend	90,000
	Cash		108,000
21/12/2021	Retained earnings	18,000
	For preferred dividend in arrear		18,000
21/12/2021	For preferred dividend in arrear	18,000
	Retained earnings	0
	Treasury Stock		18,000	1,500 * 12

(b)

	Particulars	Amount	Working
	Cash available	195,000
Less	For preferred current year dividend	18,000
Less	For preferred dividend in arrear	18,000
Less	For common share dividend	90,000	300,000 * .30
	Cash balance available after payment of dividend	69,000

Yes all can be paid in cash.