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29 April, 07:33

The annual report for Sneer Corporation disclosed that the company declared and paid preferred dividends in the amount of $100,000 in the current year. It also declared and paid dividends on common stock in the amount of $2 per share. During the current year, Sneer had 1 million common shares authorized; 300,000 shares had been issued; and 100,000 shares were in treasury stock. The opening balance in Retained Earnings was $800,000 and Net Income for the current year was $300,000. Required: Prepare journal entries to record the declaration, and payment, of dividends on (a) preferred and (b) common stock. Using the information given above, prepare a statement of retained earnings for the year ended December 31. Prepare a journal entry to close the dividends account. Next

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  1. 29 April, 09:36
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    (a) preferred stock

    Dividend Declared $100,000 (debit)

    Bank $100,000 (credit)

    (b) common stock.

    Dividend Declared $600,000 (debit)

    Bank $600,000 (credit)

    Statement of Retained Earnings

    Opening Balance in Retained Earnings $800,000

    Less Dividends ($100,000+$600,000) ($800,000)

    Add Profit for the year $300,000

    Closing Balance in Retained Earnings $300,000

    Explanation:

    (a) preferred stock

    Dividend Declared $100,000 (debit)

    Bank $100,000 (credit)

    Dividend Calculation = $100,000

    (b) common stock.

    Dividend Declared $600,000 (debit)

    Bank $600,000 (credit)

    Dividend Calculation = 300,000 * $2

    Statement of Retained Earnings

    Opening Balance in Retained Earnings $800,000

    Less Dividends ($100,000+$600,000) ($800,000)

    Add Profit for the year $300,000

    Closing Balance in Retained Earnings $300,000
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