Question

E14-1

Answer 1

Answer

• All working forms part of the answer
• Requirement ‘a’

Date	Accounts title	Debit	Credit	Working
Apr-01	Cash	$              425,000		[25000 shares x $ 17]
	Common Stock		$             125,000	[25000 shares x $ 5 stated value]
	Additional paid in capital in excess of Stated value - Common Stock		$             300,000	[25000 shares x $ 12]
	(Common Stock issued)
Jun-15	Dividends	$                25,000		[25000 shares x $ 1]
	Dividends payable		$               25,000	[25000 shares x $ 1]
	(Dividend declared)
Jun-10	Dividends Payable	$                25,000		[25000 shares x $ 1]
	Cash		$               25,000	[25000 shares x $ 1]
	(Dividend paid)
Dec-01	Cash	$                38,000		[2000 shares x $ 19]
	Common Stock		$               10,000	[2000 shares x $ 5 stated value]
	Additional paid in capital in excess of Stated value - Common Stock		$               28,000	[2000 shares x $ 14]
	(Common Stock issued)
Dec-15	Dividends	$                32,400		[ (25000 shares + 2000 shares) x $ 1.2]
	Dividends payable		$               32,400
	(dividend declared)

• Requirement ‘b’

--Dividends account balance is closed by transferring it to Retained Earnings.
Hence, Dividend account balance is DEDUCTED in Statement of Retained Earnings.
Dividend balance = $ 57,400 [25000 + 32400] will be shown as a DEDUCTION under Statement of Retained earnings.

--Dividends Payable:
So long as the balance in Dividend payable exist, it is shown on Liabilities side of the Balance Sheet, under Current Liabilities as ‘Dividend payable’.
Hence, $ 32400 of Dividend payable, will be shown as Current Liabilities under Liabilities section of Balance Sheet.