PROBLEM 3 Timber Ridge Corporation was organized on January 1, 2013. During its

Question

PROBLEM 3

Timber Ridge Corporation was organized on January 1, 2013. During its first year, the corporation issued 40,000 shares of $5 par value preferred stock and 400,000 shares of $1 par value common stock. At December 31, the company declared the following cash dividends:

                        2013                            $  8,000

                        2014                            $30,000

                        2015                            $70,000

Instructions

(a)   Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 5% and not cumulative.

(b)   Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 6% and cumulative.

(c)   Journalize the declaration of the cash dividend at December 31, 2015 using the assumption of part (b).

(a)                              Preferred               Common                  Total   

         2013                                                                                           

         2014                                                                                           

         2015

                                                                              

(b)                              Preferred               Common                  Total   

         2013                                                          

         2014                                                             

         2015       

(c)

Date

Account

Debit

Credit

  

Date

     

Account

     

Debit

     

Credit

     

  

     

     

     

     

  

     

     

     

     

  

     

     

     

     

  

     

     

     

     

     

     

     

  

Explanation / Answer

(a) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 5% and not cumulative.

Dividends to preferred should be 40,000*$5*.05 = $10,000

2013: Preferred gets $8,000. Common gets $0. Total $8,000.

2014: Preferred gets $10,000. Common gets $20,000. Total $30,000.

2015: Preferred gets $10,000. Common gets $60,000. Total $70,000.

(b) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 6% and cumulative.

Dividends to preferred should be 40,000*$5*.06 = $12,000

2013: Preferred gets $8,000. Common gets $0. Total $8,000

2014: Preferred gets $16,000 (12,000 this year, 4,000 from last year since it is cumulative). Common gets $14,000 Total $30,000.

2015: Preferred gets $12,000. Common gets $58,000. Total $70,000.

(c) Journalize the declaration of the cash dividend at December 31, 2015 using the assumption of part (b).

12/31/2015

Debit: Retained earnings 70,000

Credit: Dividends payable 70,000

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.