Answer:
Given:
Common Stock:
Par value per share = $12
Shares outstanding = 40,000
Preferred Stock:
Par value per share = $10
Shares outstanding = 6,000
Dividend rate = 8%
Retained Earnings:
Balance = $220,000
Dividends Payable Calculation:
For Preferred Stock:
Dividend payable for preferred stock = Preferred stock par value * Preferred stock dividend rate * Preferred stock shares outstanding
Dividend payable for preferred stock = $10 * 8% * 6,000
Dividend payable for preferred stock = $480
For Common Stock:
Remaining cash dividend after paying the preferred stock dividend = Total cash dividend - Preferred stock dividend payable
Remaining cash dividend = $62,000 - $480
Remaining cash dividend = $61,520
To distribute the cash dividend, we need to reduce the Retained Earnings account by the total cash dividend of $62,000. However, since there is a remaining cash dividend of $61,520 after paying the preferred stock dividend, we can only distribute this amount to the common stockholders.
The journal entry to record the distribution of the cash dividend is as follows:
Retained Earnings $61,520
Dividends Payable $61,520