The books of Binkerton Corporation carried the following account balances as at December 1, 2017:

The preferred shares have dividends in arrears for the past year (2016). On December 21, 2017, the board of directors declared the following: The current year dividends shall be $2 per share on the preferred and $0.70 per share on the common; the dividends in arrears shall be paid first by issuing one share of common shares for each 10 shares of preferred held.
The preferred shares are currently selling at $35 per share and the common shares at $20 per share. Net income for the year ending December 31, 2017 is estimated at $56,000.
Instructions
(a) Prepare the journal entries that are required for the dividend declaration, distribution, and payment, assuming that they occur at the same time.
(b) Could the company give the preferred shareholders two years of cash dividends and common shareholders a $0.70 per share dividend, all in cash? Explain your reasoning.

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Cash Preferred shares, $2 cumulative dividend, non-participating, 25,000 shares issued Common shares, 300,000 shares issued Contributed surplus (preferred) Retained earnings $1,300,000 750,000 4,500,000 150,000 327,000