The books of Conchita Corporation carried the following account balances as of December 31, 2025.

The company decided not to pay any dividends in 2025.

The board of directors, at their annual meeting on December 21, 2026, declared the following: “The current year dividends shall be 6% on the preferred and $.30 per share on the common. The dividends in arrears shall be paid by issuing 1,500 shares of treasury stock.” At the date of declaration, the preferred is selling at $80 per share, and the common at $12 per share. Net income for 2026 is estimated at $77,000.

Instructions

a. Prepare the journal entries required for the dividend declaration and payment, assuming that they occur simultaneously.

b. Could Conchita Corporation give the preferred stockholders 2 years’ dividends and common stockholders a 30 cents per share dividend, all in cash?

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Cash Preferred Stock (6% cumulative, nonparticipating, $50 par) Common Stock (no-par value, 300,000 shares issued) Paid-in Capital in Excess of Par-Preferred Stock Treasury Stock (common 2,800 shares at cost) Retained Earnings $ 195,000 300,000 1,500,000 150,000 33,600 105,000