As of December 31, 2002, First Corporation has 200,000 shares of $10 par value common stock] authorized, with 100,000 of these shares issued and outstanding.
1. Prepare journal entries to record the following 2003 transactions: Jan. 1 Received authorization for 200,000 shares of 7%, cumulative preferred stock with a par value of $10.
Jan. 2 Issued 10,000 shares of the preferred stock at $15 per share. June 1 Reacquired 40% of the common stock outstanding for $18 per share.
June 2 Declared a cash dividend of $10,000. The date of record is June 15.June 30 Paid the previously declared cash dividend of $10,000.
2. Determine the proper allocation to preferred and common stockholders of a $100,000 cash dividend declared on December 31, 2003. (This dividend is in addition to the June 2 dividend.)
3. Interpretive Question: Why didn t the preferred stockholders receive their currentdividend preference of $7,000 in part (2)?