The books of Conchita SA carried the following account balances as of December 31, 2019.
Cash......................................................................................R$ 195,000
Share Capital-Preference (6% cumulative, non-participating, R$50 par).........300,000
Share Capital-Ordinary (no-par value, 300,000 shares issued)..................1,500,000
Share Premium-Preference..............................................................150,000
Treasury Shares (ordinary 2,800 shares at cost).........................................33,600
Retained Earnings.........................................................................105,000
The company decided not to pay any dividends in 2019.
The board of directors, at their annual meeting on December 21, 2020, declared the following: "The current year dividends shall be 6% on the preference and R$0.30 per share on the ordinary. The dividends in arrears shall be paid by issuing 1,500 treasury shares." At the date of declaration, the preference is selling at R$80 per share, and the ordinary at R$12 per share. Net income for 2020 is estimated at R$77,000.
Instructions
a. Prepare the journal entries required for the dividend declaration and payment, assuming that they occur simultaneously.
b. Could Conchita SA give the preference shareholders 2 years' dividends and ordinary shareholders a 30 cents per share dividend, all in cash?