P13-42B FHA Loan Company has 10,000 shares of S3.50, no-par preferred stock and

Question

P13-42B FHA Loan Company has 10,000 shares of S3.50, no-par preferred stock and 50,000 shares of no-par common stock outstanding. FHA declared and paid the following dividends during a three-year period: 2006, $20,000; 2007, $100,000; and 2008, $150,000 Requirements 1. Compute the total dividends to preferred stock and to common stock for each of the three years if a. Preferred is noncumulative. (p. 657) b. Preferred is cumulative. (p. 656) 2. For case 1.b., journalize the declaration of the 2008 dividends on December 28, 2008, and the payment on January 17, 2009. Use sepa- rate Dividends Payable accounts for Preferred and Common. (p. 656)

Explanation / Answer

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1. Noncumulative Shares (no carried forward of arrear) 2006: Working Dividend Paid Preferred Dividend 10000*3.5 35000 20000 Common Dividend 0 Total Dividend 20000 Preferred Dividend not paid 35000-20000 15000 2007: Preferred Dividend 35000 Common Dividend 65000 Total Dividend 100000 2008: Preferred Dividend 35000 Common Dividend 115000 Total Dividend 150000 Cummulative: (arrears will be paid next year for preferred) 2006: Preferred Dividend 10000*3.5 35000 20000 Common Dividend 0 Total Dividend 20000 Preferred Dividend carried forward 35000-20000 15000 2007: Preferred Dividend 35000+15000 50000 Common Dividend 50000 Total Dividend 100000 2008: Preferred Dividend 35000 Common Dividend 115000 Total Dividend 150000 2. Journal Entry Date Account Debit Credit 28 Dec 20018 Retained Earnings 150000 Dividend Payable, preferred 35000 Dividend Payable, common 115000 17 Jan 2009 Dividend Payable, preferred 35000 Dividend Payable, common 115000 Cash 150000

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