Hodge Corporation issued 102,000 shares of $18 par value, cumulative, 7% preferr

Question

Hodge Corporation issued 102,000 shares of $18 par value, cumulative, 7% preferred stock on January 1, 2016, for $2,570,000. In December 2018, Hodge declared its first dividend of $790,000.

Prepare Hodge’s journal entry to record the issuance of the preferred stock.

If the preferred stock is not cumulative, how much of the $790,000 would be paid to common stockholders?

Common Stock Dividends $

If the preferred stock is cumulative, how much of the $790,000 would be paid to common stockholders?

Common Stock Dividends $

Explanation / Answer

A.

Dr Cash $2,570,000
Cr Preferred stock $1,836,000 (102,000 shares *$18 par value)
Cr Additional Paid-in-Capital (Preferred Stock) $734,000

B.

102,000 shares of $18 par value, cumulative, 7% preferred stock means that each year, preferred dividends should be $128,520 (102,000 * $18 * 7%)
If Hodge Corporation declared its first dividend of $790,000, that means $128,520 went to preferred stockholders and $661,480 went to common stockholders.

Common Stock Dividends $661,480

C.

If the preferred stock is cumulative, preferred dividend would be:
2016 $128,520
2017 $128,520
2018 $128,520
Total $385,560 preferred dividend

which leaves only $404,440 dividends for common stockholders.

Common Stock Dividends $404,440

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