Teak Outdoor Furniture Limited included the following shareholders' equity on its year-end balance sheet at February 28, 2014:
Shareholders' Equity
Preferred shares, $1.10 cumulative; authorized 100,000 shares in each class
Class A-issued 75,000 shares............................................................. $ 1,500,000
Class B-issued 92,000 shares................................................................ 1,840,000
Common shares; authorized 1,000,000 shares, issued 280,000 shares... 6,940,000
Retained earnings.................................................................................... 8,330,000
...................................................................................$18,610,000
Requirements
1. Identify the different issues of shares that Teak Outdoor Furniture Limited has outstanding.
2. Give the summary entries to record issuance of all the Teak shares. Assume that all the shares were issued for cash. Explanations are not required.
3. Suppose Teak did not pay its preferred dividends for three years. Would the company have to pay those dividends in arrears before paying dividends to the common shareholders? Give your reason.
4. What amount of preferred dividends must Teak declare and pay each year to avoid having preferred dividends in arrears?
5. Assume that preferred dividends are in arrears for 2013. Record the declaration of an $800,000 dividend on February 28, 2014. An explanation is not required.