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.
1. Journalize for Java the entry declaring the cash dividends on December 15, 2018.
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.
2018 December 15
Dividend payable- Preferred
Dividend payable- common
To record cash dividend declared
Question: Organizing a corporation and issuing stock
Jimmy and Randy are opening a comic store. There are no competing comic stores in the area. They must decide how to organize the business. They anticipate profits of $550,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice.
2. Would you recommend they initially issue preferred or common stock? Why?
Question: Copperhead Trust has the following classes of stock:
Preferred Stock—6%, $12 par value; 8,500 shares authorized, 7,000 shares issued and outstanding
Common Stock—$0.10 par value; 2,100,000 shares authorized, 1,400,000 shares issued and outstanding
2. Assume the preferred stock is cumulative and Copperhead passed the preferred dividend in 2016 and 2017. In 2018, the company declares cash dividends of $46,000. How much of the dividend goes to preferred stockholders? How much goes to common stockholders?
A Identifying sources of equity, stock issuance, and dividends
Voyage Comfort Specialists, Inc. reported the following stockholders’ equity on its balance sheet at June 30, 2018:
Preferred Stock—7%, ? Par Value; 625,000 shares
authorized, 280,000 shares issued and outstanding
Paid-In Capital in Excess of Par—Common 2,900,000
Total Paid-In Capital 5,640,000
Retained Earnings 12,000,000
Total Stockholders’ Equity $ 17,640,000
Common Stock—$1 Par Value; 3,000,000 shares
authorized, 1,340,000 shares issued and outstanding
1. Identify the different classes of stock that Voyage Comfort Specialists has outstanding.
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