10-48 Dividends and Cumulative Preferred Stock

Yanity Interiors, Inc., maker of seats and other interior equipment for Boeing aircraft, started 20X8 with the following balance sheet:

6% Cumulative convertible preferred stock, par value $10 a share, authorized 150,000 shares; issued 54,749 shares	$ 547,490
Common stock, par value $.20 a share, authorized 2,000,000 shares, issued 1,520,320 shares	304,064
Additional paid-in capital	2,063,351
Retained earnings	2,463,951
Less: Treasury stock, at cost
Preferred stock, 6,008 shares	(75,100)
Common stock, 9,309 shares	(167,549)
Total stockholders equity	$5,136,207

1. Suppose Yanity Interiors had paid no dividends, preferred or common, in the prior year, 20X7. All preferred dividends had been paid through 20X6. Management decided at the end of 20X8 to pay $.08 per share common dividends. Calculate the preferred dividends that would be paid during 20X8. Prepare journal entries for recording the declaration and payment of preferred and common dividends. Assume no preferred or common shares were issued or purchased during 20X7 or 20X8.

2. Suppose 20X8 net income was $500,000. Compute the 20X8 ending balance in the Retained Earnings account.