Question

Bonita Industries was organized on January 1, 2021. During its first year, the corporation issued 2,100 shares of $50 par value preferred stock and 125,000 shares of $10 par value common stock. At December 31, the company declared the following cash dividends: 2021, $6,000; 2022, $13,900; and 2023, $27,000.

a. Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 7% and noncumulative.
b. Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 8% and cumulative.
c. Journalize the declaration of the cash dividend at December 31, 2023, under part (b). (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

Answer:

a. The allocation of dividends to each class of stock assuming 7% and cumulative is shown below:-

b. The allocation of dividends to each class of stock assuming 8% and cumulative is shown below:-

c. The Journal entry is shown below:-

Explanation:

a. Preferred dividend = Issued shares × Par value preferred stock × Preferred stock × Dividend percentage

= 2100 × $50 × 7%

= $7350

                                          2021             2022              2023

Total dividend                 $6,000         $13,900            $27,000

Allocation to

preferred stock                $6,000           $7,350               $7,350

Remainder to

common stock                   $0              $6,550             $19650

                                                    ($13,900 - $7,350) ( $27,000  - $7,350)

b. Preferred dividend = Issued shares × Preferred stock × Preferred stock dividend percentage

= 2,100 × $50 × 8%

= $8,400

                                           2021                2022                 2023

Total dividend                  $6,000          $13,900             $27,000

Allocation to

preferred stock               $6,000            $10,800             $8,400

                                         $8400 + ($8,400 - 6,000)

Remainder to

common stock                    $0                $3,100               $18,600

The company announced $6000 in cash dividend in 2021, and the preferred dividend is $8400. Since the preference shares are cumulative, next year the remaining $2400 (8400-6000) dividend will be paid out.

3. Cash dividend Dr,                $27,000

           To Dividends payable              $27,000

(Being dividends payable is recorded)