Question

Problem 15-07 The books of Martinez Corporation carried the following account balances as of December 31, 2020. Cash Preferred Stock (6% cumulative, nonparticipating, $50 par) Common Stock (no-par value, 309,000 shares issued) Paid-in Capital in Excess of Par-Preferred Stock Treasury Stock (common 2,600 shares at cost) Retained Earnings $ 179,000 326,000 1,545,000 156,000 36,000 102,600 The company decided not to pay any dividends in 2020. The board of directors, at their annual meeting on December 21, 2021, declared the following: "The current year dividends shall be 6% on the preferred and $0.30 per share on the common. The dividends in arrears shall be paid by issuing 1,630 shares of treasury stock." At the date of declaration, the preferred is selling at $80 per share, and the common at $12 per share. Net income for 2021 is estimated at $72,900. (a) Prepare the journal entries required for the dividend declaration and payment, assuming that they occur simultaneously. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 3,487.) Debit Credit Account Titles and Explanation For preferred dividends in arrears: For preferred current year dividend: For common share dividend: (b) Could Martinez Corporation give the preferred stockholders 2 years' dividends and common stockholders a 30 cents per share dividend, all in cash?

Answer 1

(a)

Account Titles and Explanation	Debit	Credit
For preferred dividends in arrears:
Retained earnings	19560
Treasury stock		19560
For preferred current year dividend:
Retained earnings	19560
Cash		19560
For common share dividend:
Retained earnings	92409
Cash		92409

Preferred dividend = 6% x $326000 = $19560

Common share dividend = $0.30 x (309000 - 2600 + 1630) = $0.30 x 308030 = $92409

(b) Yes