Question

The shareholders’ equity of Deer Ltd. at the end of 2020 and 2019 appeared as follows:

		2020		2019
Share capital, preferred shares, $2 cumulative, 2,000,000 shares    authorized, 25,900 shares issued		$181,300		$181,300
Share capital, 5,000,000 common shares authorized, 1,260,000    common shares issued (2019—1,070,000 shares)		5,230,000		4,280,000
Retained earnings		4,202,000		3,404,000
Total shareholders’ equity		$9,613,300		$7,865,300

During 2020, Deer paid a total of $137,200 in cash dividends.

Assume the preferred shares were not in arrears at December 31, 2019. How was the $137,200 in cash dividends distributed between the two types of shares in 2020?

		Preferred		Common		Total
2020		$		$		$

 

  

Assume the preferred share dividends were in arrears for one year; that is, the dividends were not paid in 2019. How was the $137,200 in cash dividends distributed between the two classes of shares?

		Preferred		Common		Total
2019 arrears		$		$		$
2020
		$		$		$

  

  

Both common shares and retained earnings changed during the year. Provide journal entries that would account for the changes. (Credit account titles 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 0 for the amounts.)

No.	Account and explanation	Debit	Credit
1.
	(common shares issued during year)
2.
	(Dividends declared during year)
3.
	(Dividends paid during year)
4.
	(Net income for the year closed to  retained earnings)
5.
	(Dividends Declared for the year  closed to retained earnings)

Answer 1

preferred stock dividends = 25,900 shares * $2 = $51,800

	Preferred	Common	Total
2020	$51,800	$85,400 ($137,200-$51,800)	$137,200

Answer 2

Dividend distribution

	Preferred	Common	Total
2019 arrears	51800		51800
2020	51800	33600	85400
Total	103600	33600	137200

Answer 3

Answer c.

No.	Account and explanation	Debit	Credit
1	Cash ($5,230,000 - $4,280,000)	950000
	Common Shares		950000
	(Common shares issued during the year)
2	Dividends Declared	137200
	Dividends Payable		137200
	(Dividends declared during the year)
3	Dividends Payable	137200
	Cash		137200
	(Dividends paid during the year)
4	Income Summary [ $4,202,000 - ($3,404,000 - $137200)]	935200
	Retained Earnings		935200
	(Net income for the year close to retained earnings)
5	Retained Earnings	137200
	Dividends Declared		137200
	(Dividends declared for the year close to retained earnings)