Question

Bridgeport Corporation has 10,600 shares of $100 par value, 9%, preferred stock and 50,100 shares of $10 par value common stock outstanding at December 31, 2020. Answer the questions in each of the following independent situations. (a) If the preferred stock is cumulative and dividends were last paid on the preferred stock on December 31, 2017, what are the dividends in arrears on December 31, 2020, balance sheet? $ The amount of dividends in arrears on the December 31, 2020 How should these dividends be reported? The cumulative dividend is * as a liability. (b) If the preferred stock is convertible into 7 shares of $10 par value common stock and 4,300 shares are converted, what entry is required for the conversion assuming the preferred stock was issued at par value? (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.)

Answer 1

(a)

Dividend in arrears for 3 years from Dec 2017 to Dec 2020

= 10,600 X $100 X 9% X 3

= $286,200

Preferred dividend in arrears is not a liability. It is disclosed under notes to shareholders equity.

(b)

Account Titles and Explanation	Debit	Credit
Preferred stock (4,300 X $100)	$430,000	-
Common stock (4,300 X 7 X $10)	-	$301,000
Paid in capital in excess of par - Common Stock	-	$129,000
(To record conversion of shares)