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Sanders Corporation has the following shares outstanding: 8,000 shares of $50 par value, six percent preferred stock and 50,000 shares of $1 par value common stock. The company has $328,000 of retained earnings. At year-end, the company declares its regular $3 per share cash dividend on the preferred stock and a $2.2 per share cash dividend on the common stock. Three weeks later, the company pays the dividends.
a. Prepare the journal entry for the declaration of the cash dividends.
b. Prepare the journal entry for the payment of the cash dividends.

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Answer:

A. Dr Cash $134,000

Cr Dividend payable-preferred stock $24,000

Cr Dividend payable-common stock $110,000

b. Dr Dividend payable- preferred stock $24,000

Dr Dividend payable- common stock $110,000

Cr Cash $134,000

Explanation:

a. Preparation of the journal entry for the declaration of the cash dividends.

Dr Cash $134,000

($24,000+$110,000)

Cr Dividend payable-preferred stock $24,000

($3 x 8,000)

Cr Dividend payable-common stock $110,000

($2.20 x 50,000)

( To record declaration of $3 dividend on preferred stock and $2.20 on common stock)

b. Preparation or the journal entry for the payment of the cash dividends.

Dr Dividend payable- preferred stock $24,000

($3 x 8,000)

Dr Dividend payable- common stock $110,000

($2.20 x 50,000)

Cr Cash $134,000

($24,000+$110,000)

(To record payment of dividends on preferred and common stock)