Question

Computing dividends on preferred and common stock and journalizing

Northern Communications has the following stockholders’ equity on December 31,

2018:

Preferred Stock—5%, \(11 Par Value; 150,000 shares authorized, 20,000 shares issued and outstanding

Paid-In Capital:

\) 220,000

760,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 680,000

Total Paid-In Capital 1,660,000

Retained Earnings 200,000

Total Stockholders’ Equity \( 1,860,000

Common Stock—\)2 Par Value; 575,000 shares

authorized, 380,000 shares issued and outstanding

Requirements

2. Record the journal entries for 2018, assuming that Northern Communications declared the dividend on December 1 for stockholders of record on December 10. Northern Communications paid the dividend on December 20.

Short answer

Dividend: Preferred stock will be debited with $11,000; Cash and Shareholders for dividends will be credited with $9,000 and $2,000, respectively.

Step-by-step solution

Basic Introduction

Stock dividend: $11,000

Preferred stock dividend paid: $9,000

Preferred stock dividend in arrears: $2,000

Common stock dividend paid: $0

Journals

Date	Transaction	Debit	Credit
Dec 31	Dividend- Preferred stock	$11,000
	Cash		$9,000
	Shareholders for dividends		$2,000
	To record dividend declared