Chapter 6
Corporations: Contributed Capital and Dividends
296
Analysis
While a corporation is using the cash dividend method to record dividend payouts, cash
dividend amounts are usually debited to the cash dividends account and credited to the
dividends payable account on the date of declaration. When cash dividends are paid on
the date of payment, the dividends payable account is debited. However, after the date of
payment, there will still be debit balances in the cash dividends account. Record the journal
entry that Adam Enterprises will have to make at year-end to close the cash dividends
account.
Date
Account Title and Explanation
Debit
Credit
AP-8B (
5
)
On December 1, 2016, Fickle Feline Inc. declared $200,000 of dividends payable to
shareholders on January 3, 2017. There are 20,000 common shares worth $800,000 and 10,000,
$0.50 cumulative preferred shares worth $500,000. No new shares were issued during the year
and dividends were last declared in 2013. Fickle Feline had retained earnings of $2,500,000 at
the beginning of 2016 and earned a net income of $650,000 during the year.
Required
a) Calculate how much Fickle Feline Inc. owes the preferred shareholders.
