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Horngren'S Financial And Managerial Accounting
Found in: Page 722

Short Answer

Question: Identifying sources of equity, stock issuance, and dividends

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

Preferred Stock—5%, ? Par Value; 625,000 shares

authorized, 325,000 shares issued and outstanding

Paid-In Capital:

$ 1,300,000

1,350,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 2,600,000

Total Paid-In Capital 5,250,000

Retained Earnings 11,800,000

Total Stockholders’ Equity $ 17,050,000

Common Stock—$1 Par Value; 7,000,000 shares

authorized, 1,350,000 shares issued and outstanding

Requirements

4. No preferred dividends are in arrears. Journalize the declaration of a $200,000 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.

Answer

Retained Earnings will be debited by $200,00, preferred stock dividend payable credited by $65,000 and Common stock dividend payable will be credited by $135,000.

Preferred stock dividend payable debited by $65,000, common stock dividend payable will be debited by $135,000 and cash will be credited by $200,000

See the step by step solution

Step by Step Solution

Step 1: Basic Introduction

Dividends are distributed to stockholders from the corporation's earnings or profits. In other words, it is a reward that a corporation pays to its stockholders that can either be in cash or stock.

Step 2: Journals-

Date

Transaction

Debit

Credit

June 30, 2018

Retained Earnings

$200,000

Preferred stock dividend payable ($1,300,000 * 5%)

$65,000

Common stock dividend payable

$135,000

July 20, 2018

Preferred stock dividend payable

$65,000

Common stock dividend payable

$135,000

Cash

$200,000

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