Problem 15-7

The books of Blue Corporation carried the following account balances as of December 31, 2017.

Cash		$ 184,000
Preferred Stock (6% cumulative, nonparticipating, $50 par)		324,000
Common Stock (no-par value, 324,000 shares issued)		1,620,000
Paid-in Capital in Excess of ParPreferred Stock		137,000
Treasury Stock (common 2,700 shares at cost)		36,600
Retained Earnings		94,800

The company decided not to pay any dividends in 2017. The board of directors, at their annual meeting on December 21, 2018, declared the following: The current year dividends shall be 6% on the preferred and $0.40 per share on the common. The dividends in arrears shall be paid by issuing 1,620 shares of treasury stock. At the date of declaration, the preferred is selling at $85 per share, and the common at $12 per share. Net income for 2018 is estimated at $81,400. (a) Prepare the journal entries required for the dividend declaration and payment, assuming that they occur simultaneously. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 3,487.)

Account Titles and Explanation	Debit	Credit
For preferred dividends in arrears:
For preferred current year dividend:
For common share dividend:

(b) Could Blue Corporation give the preferred stockholders 2 years dividends and common stockholders a 40 cents per share dividend, all in cash?