Question

Mocha Company earned net income of $ 105,000 during the year ended December ​31, 2018. On December ​15, Mocha declared the annual cash dividend on its 2​% preferred stock​ (par value, $ 125,000​) and a ​$0.25 per share cash dividend on its common stock (62,000 ​shares). Mocha then paid the dividends on January ​4, 2019.

Journalize for Mocha the entry declaring the cash dividends on December 15, 2018.

Answer 1

Mocha Company declared an annual cash dividend of 2% on its preferred stock (par value $125,000) and $0.25 per share cash dividend on its common stock (62,000 shares). The total cash dividend declared is $18,000, recorded with a debit to Retained Earnings and a credit to Dividends Payable.

Step-by-step explanation:

To determine the dividend to be paid on preferred and common stock, we follow the information given: Mocha Company declared an annual cash dividend on its 2% preferred stock with a par value of $125,000 and a $0.25 per share cash dividend on its common stock which has 62,000 shares.

First, we calculate the dividend for preferred stock:
Cash Dividend for Preferred Stock = 2% of $125,000 = $2,500

Next, we calculate the dividend for common stock:
Cash Dividend for Common Stock = $0.25 × 62,000 shares = $15,500

The total cash dividend declared is the sum of preferred and common stock dividends:
Total Dividend = $2,500 (Preferred) + $15,500 (Common) = $18,000

The journal entry to record this declaration on December 15, 2018, would be:
Debit: Retained Earnings $18,000
Credit: Dividends Payable $18,000