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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 and Preferred Stock

Lemon Inc. has the following information regarding its preferred and common stock:

Preferred stock, S30 par, 12% cumulative; 300,000 shares authorized; 150,000 shares issued and outstanding

Common stock, $2 par; 2,500,000 shares authorized; 1,200,000 shares issued; 1,000,000 outstanding

As of December 31, 2019, Lemon was 3 years in arrears on its dividends. During 2020, Lemon declared and paid dividends. As a result, the common stockholders received dividends of $0.45 per share.

Required:

  1. What was the total amount of dividends declared and paid?
  2. What journal entry was made at the date of declaration?

To determine

Concept introduction:

Cash dividend:

The Cash dividend is the amount of dividend paid to shareholders in cash. The Cash dividend is declared first and paid later. There are two journal entries made, one at the time of declaration of dividend and another at the time of payment.

Requirement 1:

To calculate:

The total amount of dividend declared and paid.

Explanation

The total amount of dividend declared and paid is calculated as follows:

Preferred Dividend Common Dividend Total Preferred Dividend in Arrears
Year 2019 $...
To determine

Concept introduction:

Cash dividend:

The Cash dividend is the amount of dividend paid to shareholders in cash. The Cash dividend is declared first and paid later. There are two journal entries made, one at the time of declaration of dividend and another at the time of payment.

Requirement 2:

To prepare:

The Journal entry made at the time of declaration.

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