Sand Corporation has the following shares outstanding: 10,000 shares of $40 par value, ten percent preferred stock and 50,000 shares of $2 par value common stock. The company has $428,000 of retained earnings. At year-end, the company declares its regular $4 per share cash dividend on the preferred stock and a $3.20 per share cash dividend on the common stock. Two weeks later, the company pays the dividends. a. Prepare the journal entry for the declaration of the cash dividends. b. Prepare the journal entry for the payment of the cash dividends.

Based on the information given the appropriate journal entries to record the transactions are:

Sand Corporation journal entries

1. Debit Cash Dividend $200,000

($40,000+$160,000)

Credit Dividend payable-preferred stock  $40,000

(10,000 × $4)

Credit Dividend payable-common stock $160,000

(50,000 × $3.20)

(To record declaration of cash dividends )

2. Dividend payable-preferred stock   $40,000  

(10,000 × $4)

Debit Dividend payable-common stock $160,000

(50,000 × $3.20)

Credit  Cash $200,000

($160,000+$40,000)

(To record payment of cash dividends)

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Answer and Explanation:

The Journal entry is shown below:-

1. Cash Dividend Dr, $200,000

     To Dividends payable-Preferred Stock $40,000

(10,000 × $4)

     To Dividends Payable-Common Stock $160,000

(50,000 × $3.20)

(Being declaration of cash dividends is recorded)

2. Dividends payable - Preferred stock Dr, $40,000  

Dividends payable-Common Stock $160,000

           To Cash $200,000

(Being payment of cash dividends is recorded)

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