Chapter 14, Problem 14.2E

(a)

To determine

Cash Dividend: The amount that shareholders receive in cash in return of their investment is called as cash dividend. Company provides return to its shareholders by paying dividend which is out of profit of the company.

Declaration Date: The declaration date can be defined as the date on which company’s board of directors formally declare the payment of dividend. After the date of declaration, the company becomes liable for payment of dividend. During the same date, an outstanding dividend payment of the company is also recorded.

Payment Date: The date on which actual payment is made to the shareholders is called as payment date. In case of excess cash, the company pays a large sum of money as a dividend. On payment date, the outstanding dividend payment is also made to the shareholders.

Journalizing: It is the process of recording the transactions of an organization in a chronological order. Based on these journal entries recorded, the amounts are posted to the relevant ledger accounts.

Accounting rules for journal entries:

• To increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains.
• To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains.

To determine: The dividend paid to preferred and common stockholders for 2016, 2017, and 2018 when rate of dividend is 6%.

(b)

To determine

The dividend paid to preferred and common stockholders for 2016, 2017, and 2018 when rate of dividend is 7%.

(c)

To determine

To prepare: The journal entry for the declaration of cash dividends in 2018.