Question

Lemon Inc. has the following information regarding its preferred and common stock:

Preferred stock, $30 par, 15% cumulative; 300,000 shares authorized; 180,000 shares issued and outstanding
Common stock, $2 par; 2,500,000 shares authorized; 1,800,000 shares issued; 1,600,000 outstanding

As of December 31, 2019, Lemon was 3 years in arrears on its dividends. During 2020, Lemon declared and paid dividends. As a result, the common stockholders received dividends of $0.80 per share.

CHART OF ACCOUNTS
Lemon Inc.
General Ledger
ASSETS 111 Cash 112 Petty Cash 121 Accounts Receivable 123 Allowance for Doubtful Accounts 124 Notes Receivable 125 Supplies 126 Prepaid Insurance 127 Prepaid Rent 128 Inventory 129 Interest Receivable 130 Investment 131 Land 132 Buildings 133 Equipment 134 Furniture 135 Trucks 139 Accumulated Depreciation 141 Leased Assets LIABILITIES 211 Accounts Payable 212 Utilities Payable 213 Insurance Payable 214 Wages Payable 215 Rent Payable 221 Interest Payable 223 Income Taxes Payable 231 Dividends Payable 232 Unearned Sales Revenue 233 Unearned Rent Revenue 241 Bonds Payable 251 Notes Payable EQUITY 311 Common Stock 312 Additional Paid-In Capital-Common Stock 313 Preferred Stock 314 Additional Paid-In Capital-Preferred Stock 315 Treasury Stock 316 Additional Paid-In Capital-Treasury Stock 321 Retained Earnings 331 Dividends	REVENUE 411 Sales Revenue 412 Service Revenue 413 Interest Income 414 Rent Revenue

Required:

1. What was the total amount of dividends declared and paid?

2. What journal entry was made at the date of declaration?

Answer 1

1
Arrear Preferred Dividends	2430000	=180000*30*15%*3
Current Preferred Dividends	810000	=180000*30*15%
Common stock Dividends	1280000	=1600000*0.80
Total amount of dividends declared and paid	4520000
2
	Debit	Credit	Assets	Liabilities	Equity
Dividends	4520000				↓
Dividends Payable		4520000		↑