Question

Problem 15-07 The books of Sheridan Corporation carried the following account balances as of December 31, 2020. Cash Preferred Stock (6% cumulative, nonparticipating, $50 par) Common Stock (no-par value, 302,000 shares issued) Paid-in Capital in Excess of Par-Preferred Stock Treasury Stock (common 2,700 shares at cost) Retained Earnings $ 187,000 318,000 1,510,000 161,000 31,900 105,700 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 $0.40 per share on the common. The dividends in arrears shall be paid by issuing 1,590 shares of treasury stock." At the date of declaration, the preferred is selling at $85 per share, and the common at $12 per share. Net income for 2021 is estimated at $73,900.

Answer 1

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Sheridan Corporation
Workings
Calculation of Preference divided		Note
Total value of Preferred Stock outstanding	318,000.00	A
Dividend rate	6%	B
Annual Dividend	19,080.00	C=A*B
Dividend paid for 2020	19,080.00	J
Dividend paid for 2021	19,080.00	K
Calculation of dividend on Common share
Number of shares issued	302,000.00	D
Less: Treasury stock	2,700.00	E
Number of shares on which dividend paid	299,300.00	F=D-E
Dividend rate per share	0.40	G
Dividend on Common share	119,720.00	H=F*G
Total Dividend expense for the company	157,880.00	I=J+K+H
Answer a
Journal Entry
Account Title & Explanations	Debit $	Credit $
For Preferred dividend in Arrears
Preference dividend	19,080.00		See Note J
Cash		19,080.00
For Preferred current year dividend
Preference dividend	19,080.00		See Note K
Cash		19,080.00
For Common share dividend
Common dividend	119,720.00		See Note H
Cash		119,720.00
Answer b	Amount $
Total cash balance available	187,000.00
Total Dividend expense for the company	157,880.00		See Note I
We can see cash balance available is more than Total Dividend expense for the company so yes company is able to pay all dividends in cash.