Q40PGA_4 - Horngren'S Financial And Managerial Accounting

Question

A Identifying sources of equity, stock issuance, and dividends

Voyage Comfort Specialists, Inc. reported the following stockholders’ equity on its balance sheet at June 30, 2018:

Preferred Stock—7%, ? Par Value; 625,000 shares

 authorized, 280,000 shares issued and outstanding

Paid-In Capital:

\( 1,400,000

1,340,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 2,900,000

Total Paid-In Capital 5,640,000

Retained Earnings 12,000,000

Total Stockholders’ Equity \) 17,640,000

Common Stock—\(1 Par Value; 3,000,000 shares 

 authorized, 1,340,000 shares issued and outstanding

Requirements

4. No preferred dividends are in arrears. Journalize the declaration of a \)500,000 dividend at June 30, 2018, and the payment of the dividend on July 20, 2018. Use separate Dividends Payable accounts for preferred and common stock. An explanation is not required.

Step-by-Step Solution

Answer

Retained Earnings is debited by $500,000,preferred stock dividend payable credited by $98,000 and Common stock dividend payable are credited by $402,000.

Preferred stock dividend payable debited by $98,000 and Common stock dividend payable will be debited by $402,000and cash will be credited by $500,000.

Step 1: Basic Introduction

$\begin{array}{rcl}\mathbf{PreferredStockDividend}& \mathbf{=}& \mathbf{NumberofShares}\mathbf{\times }\mathbf{ValuePerShare}\mathbf{\times }\mathbf{DividendRate}\\ & \mathbf{=}& \mathbf{280}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{\$}\mathbf{5}\mathbf{\times }\mathbf{7}\mathbf{\%}\\ & \mathbf{=}& \mathbf{\$}\mathbf{98}\mathbf{,}\mathbf{000}\\ & & \end{array}$

$\begin{array}{rcl}\mathbf{CommonStockDividend}& \mathbf{=}& \mathbf{TotalDividend}\mathbf{-}\mathbf{PreferredStockDividend}\\ & \mathbf{=}& \mathbf{\$}\mathbf{500}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{98}\mathbf{,}\mathbf{000}\\ & \mathbf{=}& \mathbf{\$}\mathbf{402}\mathbf{,}\mathbf{000}\\ & & \end{array}$

Step 2: Journal entry of dividend payment

Date	Transaction	Debit	Credit
June 30, 2018	Retained Earnings	$500,000
	Preferred stock dividend payable		$98,000
	Common stock dividend payable		$402,000
July 20, 2018	Preferred stock dividend payable	$98,000
	Common stock dividend payable	$402,000
	Cash		$500,000