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Chapter 15: Question 10BE (page 811)

Woolford Inc. declared a cash dividend of $1.00 per share on its 2 million outstanding shares. The dividend was declared on August 1, payable on September 9 to all stockholders of record on August 15. Prepare all journal entries necessary on those three dates.

Short Answer

Expert verified

The dividend paid by Woolford Inc. on September 9 was $2,000,000.

Step by step solution

01

Meaning of Dividend

Dividends are paid to shareholders. A dividend is an amount paid to a shareholder from the profits produced by the firm in which he holds stock. The sum is determined by the number and type of shares he holds.

02

Preparing journal Entries of Woolford Inc.

Date

Particular

Folio

Debit $

Credit $

August 1

Retained Earnings A/c(2,000,000$1)

2,000,000

Dividend Payable A/c

2,000,000

To record the payment of dividend

August 15

No entry

September 9

Dividend Payable A/c

2,000,000

Cash A/c

2,000,000

To record the payment of dividend

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Most popular questions from this chapter

Discuss the propriety of showing:

  1. Treasury stock as an asset.
  2. 鈥淕ain鈥� or 鈥渓oss鈥� on sale of treasury stock as additions to or deductions from income.
  3. Dividends received on treasury stock as income.

(Dividends and Stockholders鈥� Equity Section) Anne Cleves Company reported the following amounts in the stockholders鈥� equity section of its December 31, 2016, balance sheet.

Preferred stock, 10%, \(100 par (10,000 shares authorized, 2,000 shares issued)

\)200,000

Common stock, \(5 par (100,000 shares authorized, 20,000 shares issued)

100,000

Additional paid-in capital

125,000

Retained earnings

450,000

Total

\)875,000

During 2017, Cleves took part in the following transactions concerning stockholders鈥� equity.

  1. Paid the annual 2016 \(10 per share dividend on preferred stock and a \)2 per share dividend on common stock. These dividends had been declared on December 31, 2016.
  2. Purchased 1,700 shares of its own outstanding common stock for \(40 per share. Cleves uses the cost method.
  3. Reissued 700 treasury shares for land valued at \)30,000.
  4. Issued 500 shares of preferred stock at \(105 per share.
  5. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for \)45 per share.
  6. Issued the stock dividend.
  7. Declared the annual 2017 \(10 per share dividend on preferred stock and the \)2 per share dividend on common stock. These dividends are payable in 2018.

Instructions

  1. Prepare journal entries to record the transactions described above.
  2. Prepare the December 31, 2017, stockholders鈥� equity section. Assume 2017 net income was $330,000.

Explain how underwriting costs and accounting and legal fees associated with the issuance of stock should be recorded.

The books of Conchita Corporation carried the following account balances as of December 31, 2017.

Cash \( 195,000

Preferred Stock (6% cumulative, nonparticipating, \)50 par) 300,000

Common Stock (no-par value, 300,000 shares issued) 1,500,000

Paid-in Capital in Excess of Par鈥擯referred Stock 150,000

Treasury Stock (common 2,800 shares at cost) 33,600

Retained Earnings 105,000

The company decided not to pay any dividends in 2017.

The board of directors, at their annual meeting on December 21, 2018, declared the following: 鈥淭he current year dividends shall be 6% on the preferred and \(.30 per share on the common. The dividends in arrears shall be paid by issuing 1,500 shares of treasury stock.鈥� At the date of declaration, the preferred is selling at \)80 per share, and the common at \(12 per share. Net income for 2018 is estimated at \)77,000.

Instructions

a) Prepare the journal entries required for the dividend declaration and payment, assuming that they occur simultaneously.

b) Could Conchita Corporation give the preferred stockholders 2 years鈥� dividends and common stockholders a 30 cents per share dividend, all in cash?

(Treasury Stock鈥擡thics) Lois Kenseth, president of Sycamore Corporation, is concerned about several large stockholders who have been very vocal lately in their criticisms of her leadership. She thinks they might mount a campaign to have her removed as the corporation鈥檚 CEO. She decides that buying them out by purchasing their shares could eliminate them as opponents, and she is confident they would accept a 鈥済ood鈥� offer. Kenseth knows the corporation鈥檚 cash position is decent, so it has the cash to complete the transaction. She also knows the purchase of these shares will increase earnings per share, which should make other investors quite happy. (Earnings per share is calculated by dividing net income available for the common shareholders by the weighted-average number of shares outstanding. Therefore, if the number of shares outstanding is decreased by purchasing treasury shares, earnings per share increases.)

Instructions

Answer the following questions.

  1. Who are the stakeholders in this situation?
  2. What are the ethical issues involved?
  3. Should Kenseth authorize the transaction?
See all solutions

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