Log in

View Full Version : I can't decide if this is a cash or stock dividend.


fayettae
Jul 26, 2011, 10:31 AM
I'm having problems with recording cash dividends and stock dividends in the general journal. I can't decide if this is a cash or stock dividend. The following information is what the book gives me:
Preferred Stock (10%, $50 par value, 4,000 shares authorized)
Issued and Outstanding, 1,200 Shares $60,000
Paid-in Capital in Excess of Par Value—Preferred 1,200 $61,200

June 15 Declared a semiannual dividend of 5 percent on preferred stock, payable on July 15 to stockholders of record on June 30.
July 15 Paid the dividend on preferred stock.

I feel the answer I came up with is wrong. This is my answer:
June 15 Retained Earnings 12,000.00
Dividends Payable-Preferred 12,000.00

July 15 Dividends Payable-Preferred 12,000.00
Cash 12,000.00

Just Looking
Jul 26, 2011, 11:16 AM
Your debit to Retained Earnings is fine, but companies often use an account called Dividends, Preferred Stock. It goes in the Equity section and is closed to Retained Earnings at the end of the year. You might check your textbook and see which way it suggests. Your other accounts are right.

The amount you are using is not correct. The amount would be calculated as shares issued x par value x 5%. Unless the question states it is a stock dividend, it is a cash dividend. It would say a 5% stock dividend on preferred stock... This is a cash dividend.