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Chapter 15: Q12E. (page 814)

(Cash Dividend and Liquidating Dividend) Lotoya Davis Corporation has 10 million shares of common stock issued and outstanding. On June 1, the board of directors voted an 80 cents per share cash dividend to stockholders of record as of June 14, payable June 3

Instructions

  1. Prepare the journal entry for each of the dates above, assuming the dividend represents a distribution of earnings.
  2. How would the entry differ if the dividend were a liquidating dividend?

Short Answer

Expert verified

Total Dividend Paid: $8,000,000

Step by step solution

01

Meaning of Dividend

A dividend is given to the shareholders from the company profit and retained earnings. After ascertaining profit and accumulating retained earnings, a company pays dividend according to the value of the share a shareholder hold.

02

Preparing Journal Entries

S.no.

Particular

Debit $

Credit $

June 1

Retained Earnings

8,000,000

Dividend payable

8,000,000

To record the issue of dividends.

June 14

No Entry on date of record

June 30

Dividend Payable

8,000,000

Cash

8,000,000

To record the payment of dividends.

03

Explaining the difference in entries if the dividend were liquidating dividend

If there were a liquidating dividend, the debit entry on the date of declaration would be to additional Paid-in Capital rather than Retained Earnings.

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Most popular questions from this chapter

(Equity Transactions and Statement Preparation) On January 5, 2017, Phelps Corporation received a charter granting the right to issue 5,000 shares of \(100 par value, 8% cumulative and nonparticipating preferred stock, and 50,000 shares of \)10 par value common stock. It then completed these transactions.

Jan. 11 Issued 20,000 shares of common stock at \(16 per share.

Feb. 1 Issued to Sanchez Corp. 4,000 shares of preferred stock for the

following assets: equipment with a fair value of \)50,000; a factory

building with a fair value of \(160,000; and land with an

appraised value of \)270,000.

July 29 Purchased 1,800 shares of common stock at \(17 per share. (Use cost

method.)

Aug. 10 Sold the 1,800 treasury shares at \)14 per share.

Dec. 31 Declared a \(0.25 per share cash dividend on the common stock and

declared the preferred dividend.

Dec. 31 Closed the Income Summary account. There was a \)175,700 net

income.

Instructions

  1. Record the journal entries for the transactions listed above.
  2. Prepare the stockholders鈥� equity section of Phelps Corporation鈥檚 balance sheet as of December 31, 2017.

(Analysis of Equity Data and Equity Section Preparation) For a recent 2-year period, the balance sheet of Santana Dotson Company showed the following stockholders鈥� equity data on December 31 (in millions).

2017

2016

Additional paid-in capital

\( 931

\) 817

Common stock

545

540

Retained earnings

7,167

5,226

Treasury stock

1,564

918

Total stockholders鈥� equity

\(7,079

\)5,665

Common stock shares issued

218

216

Common stock shares authorized

500

500

Treasury stock shares

34

27

Instructions

  1. Answer the following questions
  2. What is the par value of the common stock?
  3. What is the cost per share of treasury stock on December 31, 2017, and on December 31, 2016?
  4. Prepare the stockholders鈥� equity section on December 31, 2017.

(Preferred Dividends) Matt Schmidt Company鈥檚 ledger shows the following balances on December 31, 2017.

7% Preferred stock鈥擻(10 par value, outstanding 20,000 shares \) 200,000

Common stock鈥擻(100 par value, outstanding 30,000 shares 3,000,000

Retained earnings 630,000

Instructions

Assuming that the directors decide to declare total dividends in the amount of \)366,000, determine how much each class of stock should receive under each of the conditions stated below. One year鈥檚 dividends are in arrears on the preferred stock.

  1. The preferred stock is cumulative and fully participating.
  2. The preferred stock is noncumulative and nonparticipating.
  3. The preferred stock is noncumulative and is participating in distributions in excess of a 10% dividend rate on the common stock.

What is meant by par value, and what is its significance to stockholders?

(Computation of Book Value per Share) Morgan Sondgeroth Inc. began operations in January 2015 and reported the following results for each of its 3 years of operations.

2015 \(260,000net loss 2016 \)40,000 net loss 2017 \(800,000 net income

At December 31, 2017, Morgan Sondgeroth Inc. capital accounts were as follows.

8% cumulative preferred stock, par value \)100;

authorized, issued, and outstanding 5,000 shares \(500,000

Common stock, par value \)1.00; authorized 1,000,000 shares;

issued and outstanding 750,000 shares \(750,000

Morgan Sondgeroth Inc. has never paid a cash or stock dividend. There has been no change in the capital accounts since Sondgeroth began operations. The state law permits dividends only from retained earnings.

Instructions

  1. Compute the book value of the common stock on December 31, 2017.
  2. Compute the book value of the common stock on December 31, 2017, assuming that the preferred stock has a liquidating value of \)106 per share.
See all solutions

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