Chapter 6
Corporations: Contributed Capital and Dividends
301
AP-13B
(
5
9
)
On November 1, 2016, the financial records of Sam Inc. showed the following balances.
Sam Inc.
Shareholders' Equity
As at November 1, 2016
Share Capital
Preferred Shares, $5, cumulative, 200,000 authorized,
2,000 issued and outstanding
$200,000
Common Shares, unlimited authorized, 25,000 issued and outstanding 1,300,000
Total Share Capital
1,500,000
Retained Earnings
620,000
Total Shareholders’ Equity
$2,120,000
On November 15, 2016, Sam Inc. declared $320,000 of dividends payable to shareholders.
Dividends were last declared in 2013. The declared dividend was paid on December 5, 2016.
During the period November 1–December 31, 2016 the company earned a net income of
$50,000.
Required
a) Calculate how much Sam Inc. owes the preferred shareholders.
b) Prepare the journal entries to record the declaration and payment of dividends. The
company uses the cash dividends method to record dividends.
Date
Account Title and Explanation
Debit
Credit
