Prairie Sky Software has 10,000 preferred shares outstanding carrying a 2 cumulative annual dividend, with two years of dividends in arrears, and 200,000 common shares. The board declares total dividends of 100,000. Record the declaration, showing the amount payable to each class.
Prairie Sky Software has 10,000 preferred shares outstanding carrying a 2 cumulative annual dividend, with two years of dividends in arrears, and 200,000 common shares. The board declares total dividends of 100,000. Record the declaration, showing the amount payable to each class.
Answer
Dr Dividends Declared 100000; Cr Dividends Payable—Preferred 60000; Cr Dividends Payable—Common 40000
Accounts - Dividends Declared - Dividends Payable—Preferred - Dividends Payable—Common - Dividends in Arrears Payable - Cash - Retained Earnings Preferred take arrears (2 × 10,000 × $2 = 40,000) plus the current year (20,000) = 60,000; common get the remaining 40,000. The trap is Dividends in Arrears Payable: arrears were never a liability — they are disclosed, and become payable only inside this declaration.
Lyryx IFA Vol 2 §18.4, §18.4.1; Lyryx Intro FA §10.4–10.5