El 2-6 AI Corporation issued 100,000 shares of $20 par value, cumulative, 8% preferred stock on January 1,2007, for $2,100,000. In December 2009, AI declared its first dividend of $500,000.

Instructions

(a) Prepare AI’s journal entry to record the issuance of the preferred stock.

(b) If the preferred stock is not cumulative, how much of the $500,000 would be paid to common stockholders?

(c) If the preferred stock is cumulative, how much of the $500,000 would be paid to common stockholders?