Company has 10,000 shares of $100 par value 8% preferred stock and 50,000 shares of $10 par value common stock outstanding at dec 31st 2019.

(a) if the preferred stock is cumulative and dividends were last paid dec 31st 2016. if glenny declares a $425,000 dividend, record the entry for the declaration of the dividend on dec 31, 2019 for both the preferred and shared stock.

31st Dec 2019

Dr Retained Earnings                                                             425,000

Cr Dividend Payable- cumulative preferred stock              240,000

Cr Dividend Payable - common stock                                  185,000

( to record dividend declaration paid in 31st Dec 2019)

Explanation:

Cumulative preferred stock is stock that has specific dividend payment promised by firm and has the right to receive dividend ( once it is paid out) before common stock.

As the last time the firm paid dividend is 31st Dec 2016, the dividend in-arrears for cumulative stock accounting to 3 years or $240,000, that is, to be calculated as 3 x dividend paid out per year = 3 x 100 x 10,000 x 8% = $240,000.

Thus, as firm declares $425,000 dividend payment, $240,000 must go to cumulative stock holders before the remaining $185,000 (425,000-240,000) goes to common stock holders.