Question

Sanders Corporation has the following shares outstanding: 7,000 shares of $50 par value, six percent preferred stock and 45,000 shares of $1 par value common stock. The company has $328,000 of retained earnings. At year‑end, the company declares its regular $3 per share cash dividend on the preferred stock and a $2.20 per share cash dividend on the common stock. Three weeks later, the company pays the dividends.a. Prepare the journal entry for the declaration of the cash dividends.b. Prepare the journal entry for the payment of the cash dividends.

Answer 1

Answer:

For the declaration of cash dividends Sanders Corporation will credit dividends payable because it is a liability and we will debit retained earnings , because Sanders Corporation are using our retained earnings to pay the dividend.

preferred dividend = 7,000*3= $21,000

common stock dividend= 45,000*2.2=$99,000

Entries for declaration of dividend

                                                            Debit                                    Credit

Retained Earnings                                120,000

Preferred dividend payable                                                               21,000

Common stock dividend payable                                                      99,000

For recording the payment of cash dividend we will debit the dividend payables because when we pay the dividend the liability is finished, and we will credit cash because we are paying the dividends using cash and that is an asset that is decreasing so we will credit it.

Entries for payment of cash dividend    

                                                               Debit                       Credit

Preferred dividend payable                     21,000

Common stock dividend payable            99,000

Cash                                                                                         120,000  

Explanation: