[italiaaaxx]

This question has me completely stumped.. first off let me give you some background of the problem...

This company XXXX is a corporation with 100,000 shares of $1 par value common stock authorized and outstanding. It also has 2,500 shares of 8% cumulative preferred stock with a par value of $100 authorized and outstanding. A perpetual inventory system is used.

The company's common stock split 2 for 1. The treasurer issued a public statement indicating that the market price per share has "exceeded the trading range."

The retained earnings account balance is $85,000

I am now supposed to make journal entries for the following problems:

1. The board of directors declared the first dividend ever paid on the company's common stock. The preferred stockholders have one year of dividends in arrears plus one quarter of the required year dividend. The dividend on common stock was $0.03 per share. The dividend was payable on January 30 to shareholders of record as of January 24.

2. Issued 1,500 shares of preferred stock. These shares have the same characteristics as the previously issued preferred stock: cumulative, $100 par value, 8% dividend rate. The new shares were issued at $105 per share.

3. Paid the dividends declared to preferred and common shareholders.

Please help me, I've been trying and trying this problem and can't seem to get the right answers. Please explain how you got to the answer and show me how the entries would look.

This is the two entries I made as of now & I believe they are wrong...
1. Dr. Retained Earnings 85,000
Cr. Dividends Payable: Pref. Stock 25,000
Cr. CS Dividends Distributable 6,000
CC: In excess of par: common stock 54,000

2. Dr. Cash 157,500
Cr. Preferred Stock 150,000
Cr. CC: In excess of par: preferred stock 7,500
(I believe this one may actually be right)

3. Dr. Dividends Payable Preferred Stock 25,000
Cr. Cash 25,000
Dr. CS Dividends Distributable 6,000
Cr. Common Stock 6,000

[pready]

First you need to calculate the amount of dividends owed to Preferred stockholders. $100 par value * 8% percentage times 2,500 shares outstanding equals $20,000 owed to preferred shareholders from last year. Now you need to calculate the one quarter dividends owed this year. $100 par value *8% annual rate / 4 quarters * 2,500 outstanding preferred shares = $5,000

Now you can calculate the amount being paid to common shareholders. You had a stock split of a 2 for one, which means that your 100,000 shares outstanding is now 200,000 shares outstanding. So your 200,000 share outstanding * the dividend price of $0.03 equals $6,000

next you add the following amounts; $20,000 + 5,000 + 6,000 = $31,000 being paid in dividends to shareholders.

Your journal entry number one will be:
Debit Retained Earnings for 31,000
Credit Dividends Payable for 31,000

Journal entry number 2 is correct.

Journal entry number three is:
Debit Dividends Payable for 31,000
Credit Cash for 31,000

[italiaaaxx]

Thank you so much! My numbers were.. sort of right, but you really clarified how to make the entries!