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Chapter 13: Q7SE_2 (page 709)

Question: Accounting for cash dividends

Java Company earned net income of \(85,000 during the year ended December 31, 2018. On December 15, Java declared the annual cash dividend on its 4% preferred stock (par value, \)120,000) and a $0.25 per share cash dividend on its common stock (50,000 shares). Java then paid the dividends on January 4, 2019.

Requirements

2. Journalize for Java the entry paying the cash dividends on January 4, 2019.

Short Answer

Expert verified

Answer

Dividend payable- Preferred and Dividend payable- common will be debited with $4,800 and $12,500 respectively: Cash Dividend will be credited with $17,300.

Step by step solution

01

Basic Introduction

DividendPayablePreferred=PrefferedStock脳DividendRate=$120,000脳4%=$4,800DividendPayableCommon=NumberofCommonStock脳DividendRate=$50,000脳$0.25=$12,500

02

Journals of paying dividend

Date

Transaction

Debit

Credit

2019 Jan 4

Dividend payable- Preferred

$4,800

Dividend payable- Common

$12,500

Cash

$17,300

To record payment of dividend

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Most popular questions from this chapter

Question: Identifying sources of equity, stock issuance, and dividends

Tillman Comfort Specialists, Inc. reported the following stockholders鈥� equity on its balance sheet at June 30, 2018:

Preferred Stock鈥�5%, ? Par Value; 625,000 shares

authorized, 325,000 shares issued and outstanding

Paid-In Capital:

\( 1,300,000

1,350,000

Stockholders鈥� Equity

Paid-In Capital in Excess of Par鈥擟ommon 2,600,000

Total Paid-In Capital 5,250,000

Retained Earnings 11,800,000

Total Stockholders鈥� Equity \) 17,050,000

Common Stock鈥�$1 Par Value; 7,000,000 shares

authorized, 1,350,000 shares issued and outstanding

Requirements

3. Make two summary journal entries to record issuance of all the Tillman Comfort Specialists stock for cash. Explanations are not required.

Vollmer, Inc. had reported the following balances:

December 31, 2019 December 31, 2018

Net Income \( 80,000 \) 60,000

Preferred Dividends 2,000 5,000

Total Stockholders鈥� Equity 340,000 310,000

Stockholders鈥� Equity attributable to Preferred Stock 20,000 20,000

Number of Common Shares Outstanding 10,000 14,000

11. Compute Vollmer鈥檚 earnings per share for 2019.

12. Compute Vollmer鈥檚 price/earnings ratio for 2019, assuming the market price is $40 per share.

13. Compute Vollmer鈥檚 rate of return on common stockholders鈥� equity for 2019.

Identifying advantages and disadvantages of a corporation

Following is a list of advantages and disadvantages of the corporate form of business. Identify each quality as either an advantage or a disadvantage.

d. Stockholders鈥� liability is limited.

Journalizing dividend and treasury stock transactions, preparing a statement of retained earnings, and preparing stockholders鈥� equity

The balance sheet of Cullins Management Consulting, Inc. at December 31, 2017, reported the following stockholders鈥� equity:

Common Stock鈥擻(10 Par Value; 200,000 sharesauthorized, 22,000 shares issued and outstandingPaid-In Capital:

163,000

\) 220,000

580,000

Retained Earnings

Total Stockholders鈥� Equity \( 743,000

Stockholders鈥� Equity

Paid-In Capital in Excess of Par鈥擟ommon 360,000

Total Paid-In Capital

During 2018, Cullins completed the following selected transactions:

Feb. 6 Declared a 5% stock dividend on common stock. The market value of

Cullins鈥檚 stock was \)25 per share.

15 Distributed the stock dividend.

Jul. 29 Purchased 2,000 shares of treasury stock at \(25 per share.

Nov. 27 Declared a \)0.20 per share cash dividend on the common stock outstanding.

Requirements

1. Record the transactions in the general journal.

2. Prepare a retained earnings statement for the year ended December 31, 2018. Assume Cullins鈥檚 net income for the year was $87,000.

3. Prepare the stockholders鈥� equity section of the balance sheet at December 31, 2018.

Computing earnings per share and price/earnings ratio

Rocket Corp. earned net income of \(153,040 and paid the minimum dividend to preferred stockholders for 2018. Assume that there are no changes in common shares outstanding during 2018. Rocket鈥檚 books include the following figures:

Preferred Stock鈥�6%, \)60 par value; 2,000 shares authorized, 1,000

shares issued and outstanding \( 60,000

Common Stock鈥擻)5 par value; 80,000 shares authorized, 48,000 shares

issued, 46,700 shares outstanding 240,000

Paid-In Capital in Excess of Par鈥擟ommon 470,000

Treasury Stock鈥擟ommon; 1,300 shares at cost (26,000)

Requirements

1. Compute Rocket鈥檚 EPS for the year.
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