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The books of Binkerton Corporation carried the following account balances as at December 31,
2014:
The preferred shares have dividends in arrears for the past year (2013). At its annual meeting
on December 21, 2014, the board of directors declared the following: The current year
dividends shall be $2 per share on the preferred and $0.70 per share on the common; the
dividends in arrears shall be paid by issuing one share of common shares for each 10 shares of
preferred held.
The preferred shares are currently selling at $80 per share and the common shares at $20 per
share. Net income for 2014 is estimated at $56,000.
Instructions
(a) Prepare the journal entries that are required for the dividend declaration and payment,
assuming that they occur at the same time.
(b) Could the company give the preferred shareholders two years of dividends and common
shareholders a $0.70 per share dividend, all in cash? Explain your reasoning.
ANSWER
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account-balances/
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