Question

Monty Corporation has 11,600 shares of $100 par value, 9%, preferred stock and 48,200 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 reportednot reported as a liability.

(b) If the preferred stock is convertible into 6 shares of $10 par value common stock and 3,300 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 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

(c) If the preferred stock was issued at $106 per share, how should the preferred stock be reported in the stockholders’ equity section? (Enter account name only and do not provide descriptive information.)

Monty Corporation Balance Sheet (Partial)
Current AssetsCurrent LiabilitiesIntangible AssetsLong-term InvestmentsLong-term LiabilitiesPaid-in CapitalProperty, Plant and EquipmentStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Paid-in CapitalTotal Property, Plant and EquipmentTotal Stockholders' Equity
			$

Answer 1

Part A

The amount of dividends in arrears on the December 31, 2020

$313200

Dividends in arrears = 11600*100*9%*3 = $313200

The cumulative dividend is not reported as a liability

(it is disclosed in a note to the stockholders’ equity section)

Part B

Account titles and explanation	Debit	Credit
Preferred stock	330000
Common stock (3300*6*10)		198000
Paid-in Capital in Excess of Par - Common Stock		132000

Part C

Monty Corporation Balance Sheet (Partial)
Paid in capital
Preferred stock (11600*100)	1160000
Paid-in Capital in Excess of Par - Preferred Stock (11600*6)	69600