Question

"Blossom Corporation was organized on January 1, 2019. During its first year, the corporation issued 1,900 shares of $50 par value preferred stock and 100,000 shares of $10 par value common stock. At December 31, the company declared the following cash dividends: 2019, $5,200; 2020, $13,500; and 2021, $27,000.

Journalize the declaration of the cash dividend at December 31, 2021, under part (b). (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.)"

Answer 1

To journalize a cash dividend declaration, one would debit Retained Earnings and credit Dividends Payable with the declared dividend amount. In the Babble, Inc. case, the value of each share can be determined using the present value of expected future dividend payments, which are based on the company's projected profits.

Step-by-step explanation:

The question involves journalizing the declaration of a cash dividend for Blossom Corporation. When declaring a dividend, it is essential to move the declared amount from retained earnings to a dividend payable account. The journal entry for December 31, 2021, when Blossom Corporation declares the cash dividend of $27,000, is as follows:

• Debit Retained Earnings $27,000
• Credit Dividends Payable $27,000

This entry reduces the retained earnings and creates a liability for the company to pay the dividends to the shareholders.

To apply this concept with the Babble, Inc. scenario provided, an investor considering purchasing a share would evaluate the present value of the expected dividend payments that Babble, Inc. projects. As Babble expects to pay out dividends equivalent to their profits ($15 million right away, $20 million one year from now, and $25 million two years from now) divided by the number of shares (200), the value of each share would be calculated based on the present value of these future dividend payments.