Question

The annual report for Sneer Corporation disclosed that the company declared and paid preferred dividends in the amount of $100,000 in the current year. It also declared and paid dividends on common stock in the amount of $2 per share. During the current year, Sneer had 1 million common shares authorized; 300,000 shares had been issued; and 100,000 shares were in treasury stock. The opening balance in Retained Earnings was $800,000 and Net Income for the current year was $300,000. Required: Prepare journal entries to record the declaration, and payment, of dividends on (a) preferred and (b) common stock. Using the information given above, prepare a statement of retained earnings for the year ended December 31. Prepare a journal entry to close the dividends account. Next

Answer 1

Answer:

(a) preferred stock

Dividend Declared $100,000 (debit)

Bank $100,000 (credit)

(b) common stock.

Dividend Declared $600,000 (debit)

Bank $600,000 (credit)

Statement of Retained Earnings

Opening Balance in Retained Earnings    $800,000

Less Dividends ($100,000+$600,000)    ($800,000)

Add Profit for the year                                $300,000

Closing Balance in Retained Earnings      $300,000

Explanation:

(a) preferred stock

Dividend Declared $100,000 (debit)

Bank $100,000 (credit)

Dividend Calculation = $100,000

(b) common stock.

Dividend Declared $600,000 (debit)

Bank $600,000 (credit)

Dividend Calculation = 300,000 × $2

Statement of Retained Earnings

Opening Balance in Retained Earnings    $800,000

Less Dividends ($100,000+$600,000)    ($800,000)

Add Profit for the year                                $300,000

Closing Balance in Retained Earnings      $300,000