Question

PRINTER VERSION BACK Exercise 15-21 The outstanding capital stock of Blue Corporation consists of 1,800 shares Assuming that the company has retained earnings of $91,500, al of which is t of $100 par value, 7% preferred, and 5,500 shares of SSO par value common. to be paid out in dividends, and that preferred dividends were not paid during the 2 years preceding the current year, state how much each class of stock should receive under each of the following conditions. (a) The preferred stock is noncumulative and nonparticipating. (Round answers to O decimal places, e.g. 8.487.) Preferred Common (b) The preferred stock is cumulative and nonparticipating. (Round answers to o decimal places, eg. $38,487.) Preferred Com mon (c The preferred stock is cumulative and participating Round the rate of participation to 4 decimal places, eg 1.4278%. Round an ers to 0 dec mal places eq. 38,487.) Preferred Common Question Attempts: O of 3 used SAVE FOR LATER SUBKET ANSWER

Answer 1

Annual Preferred Dividends = 1,800 x $ 100 x 7 % = $ 12,600.

a. The preferred stock is noncumulative and nonparticipating:

Preferred	Common
$ 12,600	$ 78,900

Dividends payable to preferred stockholders = $ 12,600 x 1 = $ 12,600

Dividends available for common stock holders = $ 91,500 - $ 12,600 = $ 78,900

b. The preferred stock is cumulative and nonparticipating:

Preferred	Common
$ 37,800	$ 53,700

Dividends payable to preferred stockholders = $ 12,600 x 3 = $ 37,800

Dividends available for common stockholders = $ 91,500 - $ 37,800 = $ 53,700

c. The preferred stock is cumulative and participating:

Preferred	Common
$ 51,428	$ 40,072

Rate of participation for preferred stock = ( 1,800 x $ 100 ) / [ ( 1,800 x $ 100) + ( 5,500 x $ 50) ] = $ 180,000 / $ 455,000 = 0.3956

Regular dividends payable to preferred stockholders = $ 37,800

Initial payout to common stockholders = 5,500 x $ 50 x 7 % = $ 19,250.

Participating payout for preferred stockholders = $ ( 91,500 - 37,800 - 19,250) x 0.3956 = $ 13,628.42

Total payout for preferred stockholders = $ 37,800 + $ 13,628.42 = $ 51,428.42

Remaining for common stockholders = $ 20,821.58

Therefore, total payout for common stockholders = $ 19,250 + $ 20,821.58 = $ 40,071.58