Question

2. ABC, Inc. has 4,000 shares of 6%, $50 par value cumulative preferred stock issued at the beginning of 2016 and 200 shares of cumulative preferred Treasury Stock. All remaining shares are common stock. Due to cash flow difficulties, the company was not able to pay dividends in 2016. The company plans to pay total dividends of $20,000 in 2017. How much of the $20,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2017? Com Div Pd Div in Arrears Pd Div in Arrears Pref Div Pd 2016 2017 Beg Retained Eanings + Net Income Net Loss Dividends= End Retained Earnings Beg Stk Bal+ Issuance of Stock + Beg Ret Ean + Net Inc - Net Loss-Div= End Stkhldrs Eq End Stkhldrs Eq Beg Stkhldrs Eq + Issuance of Stock+ Net Inc- Net Loss- Div Shares Outstanding Shares Issued - Shares of Treas Stk Dividends based on Shares OUTSTANDING

Please help with 2 and 3. Thank you!

Answer 1

outstanding preferred shares = 4,000 - 200 = preferred stock dividend in arrears for 2016 = 3,800 * $50 * 6% = arrears of 2016 preferred stock dividend paid in 2017 = 2017 preferred stock dividend paid = $20,000 - $11,400 = preferred stock dividend in arrears for 2017 = $11,400 - $8,600 = $ 3,800 $ 11,400 $ 11,400 $ 8,600 $ 2,800 pref div pd div in arrears $ 11,400 $ 2,800 div in arrears pd $0 $ 11,400 com div pd $0 $0 2016 2017 $0 $8,600 | + beginning balance in retained earnings net income dividends paid ending balance in retained earnings $ 278,000 $ 62,000 -$ 7,000 $333,000 1 + beginning contributed capital issue of stock ending contributed capital ending balance in retained earnings ending balance in stockholders' equity $ 345,000 $ 98,000 $ 443,000 $333,000 $ 776,000 1 + 1

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