Q7SE_2 - 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

2. Journalize for Java the entry paying the cash dividends on January 4, 2019.

Step-by-Step Solution

Answer

Answer

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

Step 1: Basic Introduction

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

Step 2: Journals of paying dividend

Date	Transaction	Debit	Credit
2019 Jan 4	Dividend payable- Preferred	$4,800
	Dividend payable- Common	$12,500
	Cash		$17,300
	To record payment of dividend