Question

Teal Mountain Inchas the following shares outstanding 54,400 cortion and 17.700 $0.65 cumulative preferred.On December 15, the directors declared dividends of $62,715 to the shareholders af record on December 26. payable January 10. Dividends have not been paid for the last two years. Your Answer Correct Answer (Used) Your answer is incorrect. Calculate the amount of dividends payable to each af the comman shareholders and the preferred shareholders. Dividends payable to the preferred shareholders $ Dividends payable to the common shareholders $ eTextbook and Media eTextbook List of Accounts Your Answer Correct Answer X Your answer is incorrect. Prepare the required entries on each of these dates. (Credit exccountitles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter for the amounts. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit Dec. 15 (To record declaration of dividend. (To record payment of dividends.

Please show all calculations

Answer 1

Solution:

Requirement 1:

Dividend Payable to Preferred Shareholders = $34,515 ( $ 11505 * 3 Years)

Dividend Payable to Common Shareholders = $ 28,200 ($ 62715- $ 34,515 )

Reason: As per rules, dividend declared during the year will be distributed in the following order

1) Preferred Stock Dividend arrears of previous years if such shares are accumulative.

2) Current year Preferred Stock Dividend.

3) Current year Common Stock Dividend.

Here in this question there is cumulative preferred dividend arrears for last 2 years. So, we are paying for total 3 years

( 17,700 shares * $ 0.65 per share ) = $11,505.

Requirement 2:

There are 2 ways to write entries( Based on requirement , pick one)

1)

Date	Account Titles and Explanation	Debit	Credit
Dec. 15	Cash Dividend	$              62,715
	Dividend Payable		$         62,715
	( To record declaration of dividend)
Jan. 10	Dividend Payable	$              62,715
	Cash		$         62,715
	(To record payments of dividends)

2)

Date	Account Titles and Explanation	Debit	Credit
Dec. 15	Cash Dividend	$              62,715
	Dividend Payable-Preferred Stock		$         34,515
	Dividend Payable-Common Stock		$         28,200
	( To record declaration of dividend)
Jan. 10	Dividend Payable-Preferred Stock	$              34,515
	Dividend Payable-Common Stock	$              28,200
	Cash		$         62,715
	(To record payments of dividends)