Question

Computing dividends on preferred and common stock and journalizing

The following elements of stockholders’ equity are from the balance sheet of Sneed Marketing Corp. at December 31, 2017:

800,000

Preferred Stock—4%, \(2 Par Value; 80,000 shares

authorized, 55,000 shares issued and outstanding

Paid-In Capital:

\) 110,000

Stockholders’ Equity

Common Stock—$0.10 Par Value; 8,750,000 shares

authorized, 8,000,000 shares issued and outstanding

Sneed paid no preferred dividends in 2017.

Requirements

2. Record the journal entries for 2018 assuming that Sneed Marketing Corp. declared the dividends on July 1 for stockholders of record on July 15. Sneed paid the dividends on July 31

Short answer

Retained Earnings will be debited; Preferred stock dividend and Common stock dividend will be credited.

Preferred stock dividend and Common stock dividend is debited; Cash is credited.

Step-by-step solution

Basic Introduction-

Retained earnings is the portion of the income earned by the company which are not distributed in the shareholders and retain in the business for growth purposes.

Journals

Date	Transaction	Debit	Credit
July 1	Retained Earnings	$185,000
	Preferred stock dividend		$4,400
	Common stock dividend		$180,600
	To record dividend declared
July 15	No entry
July 31	Preferred stock dividend	$4,400
	Common stock dividend	$180,600
	Cash		$185,000
	To record dividend paid.