Q7SE_1 - Horngren'S Financial And Managerial Accounting

Question

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

1. Journalize for Java the entry declaring the cash dividends on December 15, 2018.

Step-by-Step Solution

Answer

Answer

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

Step 1: Basic calculation

$$\begin{gathered} \mathbf{DividendPayablePreferred}\mathbf{=}\mathbf{PrefferedStock}\mathbf{\times }\mathbf{DividendRate} \\ \mathbf{=}\mathbf{\$}\mathbf{120}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{4}\mathbf{\%} \\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{800} \\ \mathbf{DividendPayableCommon}\mathbf{=}\mathbf{NumberofCommonStock}\mathbf{\times }\mathbf{DividendRate} \\ \mathbf{=}\mathbf{\$}\mathbf{50}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{\$}\mathbf{0}\mathbf{.}\mathbf{25} \\ \mathbf{=}\mathbf{\$}\mathbf{12}\mathbf{,}\mathbf{500} \end{gathered}$$

Step 2: Journals of declaring dividend

Date	Transaction	Debit	Credit
2018 December 15	Cash Dividend	$17,300
	Dividend payable- Preferred		$4,800
	Dividend payable- common		$12,500
	To record cash dividend declared