Question

Sheffield Corporation has 8,700 shares of $100 par value, 9%, preferred stock and 48,300 shares of $10 par value common stock outstanding at December 31, 2017. 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, 2014, what are the dividends in arrears at December 31, 2017? Amount of dividends in arrears 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 3,600 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 $109 per share, how should the preferred stock be reported in

Answer 1

Answer a
Calculation of Amount of preferred stock dividends in arrears
As the dividend was last paid on Dec.31,2014 , hence dividend is in arrears for 3 years as on Dec.31,2017
Dividend payable per year = 8700 shares * $100 * 9% = $78,300
Amount of dividend in arrears = $78,300 * 3 years = $2,34,900
Reporting of dividend
The cumulative dividend is $2,34,900 as a liability.
Answer b
Journal entry for conversion of preferred stock
Account Titles and Explanation	Debit	Credit
9% Preferred stock,$100 Par	$360,000.00
Common Stock,$10 Par		$252,000.00
Additional Paid In Capital-Common stock		$108,000.00
(to record conversion of 3600 shares of preferred stock at par as 1:7 ratio)
Answer c
Reporting of issue of preferred stock in stockholders equity section
Sheffield Corporation
Balance Sheet (Partial)
Stockholders Equity
9%,Preferred Stock , $100 Par
Additional Paid in Capital - Preferred stock