Question

Current Attempt in Progress

1.

M. Swifty Corporation has 16,000 stares of 9 %, $ 100 par value, cumulative preferred stock outstanding at December 31, 2020 No dividends were declared in 2018 or 2019 . If M.Swifty wants to pay $ 450000 of dividends in 2020, what amount of dividends will common stockholders receive?

2,

Sheridan Corporation has 54,000 shares of $ 10 par value common stock outstanding It declares a 15 % stock dividend on December 1when the market price per share is $ 16. The dividend shares are issued on December 31

Prepare the entries for the declaration and issuance of the stock dividend. (Record journal entries in the order presented in the problem. the account titles and enter 0 for the amounts.)

Answer 1

1.

Par value per preferred share = $100

Preferred dividend rate = 9%

Dividend per preferred share = Par value per preferred share x Preferred dividend rate

= 100 x 9%

= $9

Number of preferred shares = 16,000

Annual preferred dividends = Dividend per preferred share x Number of preferred shares

= 9 x 16,000

= $144,000

Preferred dividend was not paid in the year 2018 and 2019

Dividend received by preferred stockholders = Arrears of dividend + Current year's dividend

= 144,000 x 2 + 144,000

= $432,000

Dividend received by common stockholders = Total cash dividend declared- Dividend received by preferred stockholders

= 450,000 - 432,000

= $18,000

2.

$10 par value shares of common stock outstanding = 54,000/10

= 5,400

Current market value of 1 common stock = $16

Stock dividend declared = 15%

Hence, number of shares to be issued = 54,000 x 15%

= 8,100

Amount to be debited to retained earnings = Number of shares to be issued x Current market value of 1 common stock

= 8,100 x 16

= $129,600

Amount to be credited to common stock dividend distributable = Number of shares to be issued x Par value per share

= 8,100 x 10

= $81,000

Amount to be credited to Paid in capital, in excess of par - common stock = Number of shares to be issued x (market value of 1 common stock - Par value per share)

= 8,100 x (16 - 10)

= $48,600

Journal

Date	Account title	Debit	Credit
Dec. 1	Retained earnings	129,600
	Common stock dividend distributable		81,000
	Paid in capital in excess of par value		48,600
	(To record declaration of stock dividend
Dec. 31	Common stock dividend distributable	81,000
	Common stock		81,000
	(To record issue of dividend shares)