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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Cash Dividends on Common Stock

Berkwild Company is authorized to issue 2,000,000 shares of common stock. At the beginning of 2019, Berkwild had 248,000 issued and outstanding shares. On July 2, 2019. Berkwild repurchased 4,610 shares of its common stock at $28 per share. On March 1 and September 1, Berkwild declared a cash dividend of $1.10 per share. The dividends were paid on April 1 and October 1.

Required:

  1. Prepare the journal entries to record the declaration of the two cash dividends.
  2. Prepare the journal entries to record the payment of the two dividends.
  3. CONCEPTUAL CONNECTION Explain why the amounts of the two dividends are different.

To determine

(a)

Introduction:

Cash Dividends are the most common type of dividends that a company pays to its current shareholders. Shareholders who own shares until the date of record are paid dividends on the date of payment.

To record:

Journal entry for declaration of cash dividends.

Explanation

Given:

The company records 248,000 shares as outstanding in the beginning of 2019 and repurchased 4,610 shares on 1st July. $1.10 per share cash dividend is declared on March 1 and September 1.

Date of declaration: March 1

No. of issued and outstanding shares = 248,000

This means $1.10 of cash dividend will be paid on 248,000 shares.

Total Cash Dividend to be paid = No. of outstanding shares × Dividend per share

Total Cash Dividend to be paid = 248,000 × $1.10

Total Cash Dividend to be paid = $272,800

Journal Entry for declaration of cash dividend

Date Particulars Debit ($) Credit ($)
March 1,
2019
Retained Earnings Dr.
Dividends Payable
272,800 272,800

Date of declaration: September 1

No

To determine

(b)

Introduction:

Cash Dividends are the most common type of dividends that a company pays to its current shareholders. Shareholders who own shares until the date of record are paid dividends on the date of payment.

To record:

Journal entry for payment of declared dividends.

To determine

(c)

Introduction:

Cash Dividends are the most common type of dividends that a company pays to its current shareholders. Shareholders who own shares until the date of record are paid dividends on the date of payment.

To find:

Reason for the difference in the amount of dividends.

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