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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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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)  
  • The journal entries and the preparation of the statement of retained earnings is presented below:

  • The journal entries are as follows:

1. Cash Dividend Dr $120,000

                  To Dividend Payable  $120,000

(To record the declaration of the dividend)

2. Dividend Payable Dr $120,000

                         To Cash  $120,000  

(To record the payment of the dividend)  

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

                  To Dividend Payable  $444,400

 (To record the declaration of the dividend)

4. Dividend Payable Dr $444,400  

                     To Cash  $444,400

(To record the payment of the dividend)

  • The preparation of the retained earnings 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

(To record the closing entry for dividend)

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