Question

Exercise 15-22 Your answer is partially correct. Try again Indigo Company's ledger shows the following balances on December 31, 2017 796 Preferred Stock-$10 par value, outstanding 21,600 shares Common Stock-$100 par value, outstanding 27,500 shares Retained Earnings 216,000 2,750,000 623,000 Assuming that the directors decide to declare total dividends in the amount of $382,000, determine how much each class of stock should receive under each of the conditions stated below. One year's dividends are in arrears on the preferred stock. (a) The preferred stock is cumulative and fully participating. (Round the rate of participation to 4 decimal places, e.g. 1.4278%. Round answers to 0 decimal places, e.g. $38,487.) Preferred Common 30,24 351,76 (b) The preferred stock is noncumulative and nonparticipating. (Round answers to 0 decimal places, e.g. $38,487.) Common 15,12 366,88 (c) The preferred stock is noncumulative and is participating in distributions in excess of a 9% dividend rate on the common stock. (Round the rate of participation to 4 decimal places, e.g. 1.4278%. Round answers to 0 decimal places, eg. $38,487.) Preferred Common 17,71 364,28 Click if you would like to Show Work for this question:

Answer 1

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a. Preferred Stock is cumulative and fully participating:
		Preferred	Common	Total
Dividend in arrears	216000*7%	$    15,120		$ 15,120
Current Dividend
-Preferred	216000*7%	$    15,120		$ 15,120
-Common	2750000*7%		$192,500	$192,500
Balance Dividend	Working below	$    11,598	$147,662	$159,260
Total		$    41,838	$340,162	$382,000
Working:
Total Dividend Paid		$ 382,000
Less:		$ -15,120
		$ -15,120
		$-192,500
Balance Dividend		$ 159,260
This will be distributed in the ratio of Par Value of stock:
Preferred	216000/2966000*159260	$    11,598
Common	2750000/2966000*159260	$ 147,662
b. Preferred Stock is Non cumulative and Non participating:
		Preferred	Common	Total
Current Dividend
-Preferred	216000*7%	$    15,120		$ 15,120
-Common	Balance 382000-15120		$366,880	$366,880
Total		$    15,120	$366,880	$382,000
c. Preferred Stock is cumulative and fully participating:
		Preferred	Common	Total
Current Dividend
-Preferred	216000*7%	$    15,120		$ 15,120
-Common	2750000*7%		$192,500	$192,500
Additional to Common	2750000*(9%-7%)		$ 55,000	$ 55,000
Balance Dividend	Working below	$      8,694	$110,686	$119,380
Total		$    23,814	$358,186	$382,000
Working:
Total Dividend Paid		$ 382,000
Less:		$ -15,120
		$-192,500
		$ -55,000
Balance Dividend		$ 119,380
This will be distributed in the ratio of Par Value of stock:
Preferred	216000/2966000*119380	$      8,694
Common	2750000/2966000*119380	$ 110,686