The books of Binkerton Corporation carried the following account balances as at December 1, 2020: 

Cash.......................................................................$1,300,000 

Preferred shares, $2 cumulative dividend, 

non-participating, 25,000 shares issued................750,000 

Common shares, 300,000 shares issued............4,500,000 

Contributed surplus (preferred).............................150,000

Retained earnings....................................................327,000 

The preferred shares have dividends in arrears for the past year (2019). On December 21, 2020, 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 common share for each 10 preferred shares 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, 2020, 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.