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24 December, 04:16

The annual report for Sneer Corporation disclosed that the company declared and paid preferred dividends in the amount of $120,000 in the current year. It also declared and paid dividends on common stock in the amount of $2.20 per share. During the current year, Sneer had 1 million common shares authorized; 320,000 shares had been issued; and 118,000 shares were in treasury stock. The opening balance in Retained Earnings was $820,000 and Net Income for the current year was $320,000. 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.

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  1. 24 December, 04:31
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    Answer and Explanation:

    The journal entries are shown below:

    1 Cash Dividend Dr $120,000

    To Dividend Payable $120,000

    (Being the dividend is declared)

    2 Dividend Payable Dr $120,000

    To Cash $120,000

    (Being the dividend is paid)

    3 Cash Dividend Dr [ (320,000 - 118,000) * $2.20] $444,400

    To Dividend Payable $444,400

    (Being the dividend is declared)

    4 Dividend Payable Dr $444,400

    To Cash $444,400

    (Being the dividend is paid)

    Now the preparation of the retained earning statement is presented below:

    Sneer Corporation

    Retained Earning statement

    For the year ended December 31

    Beginning balance of retained earning $820,000

    Add: Net income $320,000

    Less: Cash Dividend paid - $564,400 ($120,000 + $444,400)

    Ending balance of retained earning $575,600

    And, the journal entry to close the dividend account is

    Retained Earnings Dr ($120,000 + $444,400) $564,400

    To Cash Dividends $564,400

    (Being the closing entry for dividend is closed)
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