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Chapter 13: Q8SE_2 (page 709)

Question: Copperhead Trust has the following classes of stock:

Preferred Stock鈥�6%, \(12 par value; 8,500 shares authorized, 7,000 shares issued and outstanding

Common Stock鈥擻)0.10 par value; 2,100,000 shares authorized, 1,400,000 shares issued and outstanding

Requirements

2. Assume the preferred stock is cumulative and Copperhead passed the preferred dividend in 2016 and 2017. In 2018, the company declares cash dividends of $46,000. How much of the dividend goes to preferred stockholders? How much goes to common stockholders?

Short Answer

Expert verified

Answer

Cumulative preference dividend will be $15,120 and common dividend will be $30,880.

Step by step solution

01

Basic Introduction

Cumulative Preference dividends are required sum of dividend payments that needs to be made by a firm to its preferred shareholders. Corporation is bound to pay cumulative dividends, even if they are paid at a later date than actual date.

02

Computation of dividend

2016- Preferred dividend in arrear (7,000 shares x $12 x 6%)

$5,040

2017- Preferred dividend in arrear (7,000 shares x $12 x 6%)

$5,040

2018- Preferred dividend (7,000 shares x $12 x 6%)

$5,040

2018- Common dividend ($46,000- $5,040- $5,040- $5,040)

$30,880

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Most popular questions from this chapter

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.

Journalizing treasury stock transactions and reporting stockholders鈥� equity

Southern Amusements Corporation had the following stockholders鈥� equity on

November 30:

Paid-In Capital:

Common Stock鈥擻(5 Par Value; 1,300 sharesauthorized, 250 shares issued and outstanding1,250

Retained Earnings50,000

Total Stockholders鈥� Equity \) 55,000

Stockholders鈥� Equity

Paid-In Capital in Excess of Par鈥擟ommon 3,750

Total Paid-In Capital

\(5,000

On December 30, Southern purchased 200 shares of treasury stock at \)15 per share.

Requirements

2. Prepare the stockholders鈥� equity section of the balance sheet at December 31, 2018. Assume the balance in retained earnings is unchanged from November 30.

What account is used to record the premium when issuing common stock? What type of account is this?

Computing dividends on preferred and common stock and journalizing

Northern Communications has the following stockholders鈥� equity on December 31,

2018:

Preferred Stock鈥�5%, \(11 Par Value; 150,000 shares authorized, 20,000 shares issued and outstanding

Paid-In Capital:

\) 220,000

760,000

Stockholders鈥� Equity

Paid-In Capital in Excess of Par鈥擟ommon 680,000

Total Paid-In Capital 1,660,000

Retained Earnings 200,000

Total Stockholders鈥� Equity \( 1,860,000

Common Stock鈥擻)2 Par Value; 575,000 shares

authorized, 380,000 shares issued and outstanding

Requirements

2. Record the journal entries for 2018, assuming that Northern Communications declared the dividend on December 1 for stockholders of record on December 10. Northern Communications paid the dividend on December 20.

What is the effect on the accounting equation when cash dividends are declared?

What is the effect on the accounting equation when cash dividends are paid?
See all solutions

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