Chapter 6
Corporations: Contributed Capital and Dividends
270
Analysis
Both the cash dividend and retained earnings methods are acceptable accounting methods
that produce the same result in recording cash dividend payouts. Why do you think some
corporations prefer to use the cash dividends method, despite the fact it needs more entries
than the other method? What advantages does that method offer to the corporation that
chooses to use it?
AP-8A (
5
)
On November 1, 2016, Mistry Inc. declared $850,000 of dividends payable to shareholders on
January 15, 2017. Outstanding are 220,000 common shares worth $2,000,000 and 30,000, $4
cumulative preferred shares worth $3,000,000. No new shares were issued during the year
and dividends were last declared in 2012. Mistry had retained earnings of $4,500,000 at the
beginning of 2016 and earned a net income of $1,200,000 during the year.
Required
a) Calculate how much Mistry Inc. owes the preferred shareholders.
