Question

Exercise 15-21 The outstanding capital stock of Sandhill Corporation consists of 2,100 shares of $100 par value, 7% preferred, and 4,600 shares of $50 par value common. Assuming that the company has retained earnings of $82,000, all of which is 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 0 decimal places, e.g. $38,487.) Preferred Common $enter a dollar amount rounded to 0 decimal places $enter a dollar amount rounded to 0 decimal places (b) The preferred stock is cumulative and nonparticipating. (Round answers to 0 decimal places, e.g. $38,487.) Preferred Common $enter a dollar amount rounded to 0 decimal places $enter a dollar amount rounded to 0 decimal places (c) The preferred stock is cumulative and 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 $enter a dollar amount rounded to 0 decimal places $enter a dollar amount rounded to 0 decimal places LINK TO TEXT Question Attempts: 0 of 3 used SAVE FOR LATER SUBMIT ANSWER

Answer 1

Answers:

(a) The preferred stock is noncumulative and nonparticipating.

Preferred	Common
14,700	67,300

(b) The preferred stock is cumulative and nonparticipating.

Preferred	Common
44,100	37,900

(c) The preferred stock is cumulative and participating.

Preferred	Common
54,505	27,495

Calculation:

(a) The preferred stock is noncumulative and nonparticipating.

Preferred Dividend = 2100 shares * $100 par value * 7% Dividend = $14,700

Remaining Payout = $82,000- $14,700 = $67,300

TOTAL Preferred Dividend = $14,700

TOTAL Common Dividend = $67,300

(b) The preferred stock is cumulative and nonparticipating.

1st: Preferred Dividend, 2 prior years = 2100 shares * 100 par value * 7% dividend *2 = $29,400

2nd: Preferred Dividend, this year = 2100 shares * 100 par value * 7% dividend = $14,700

Remaining Payout = $82,000 - $29,400- $14,700= $37,900

TOTAL Preferred Dividend = $29,400- $14,700 = $44,100

TOTAL Common Dividend = $37,900

(c) The preferred stock is cumulative and participating.

1st:Preferred Dividend, 2 prior years = = 2,100 shares * $100 par value * 7% dividend * 2 = $29,400

2nd: Preferred Dividend, this year = 2,100 shares x $100 par value x 7% dividend = $14,700

3rd:Common Dividend = 4,600 shares x $50 par value x 7% dividend = $16,100

Remaining Payout = $82,000 - $29,400 - $14,700 - $16,100 = $21,800

4th:Participating Payout:

Preferred =$21,800 x ($210,000 ÷ $440,000) = $21,800 x 47.7273% = $10,405

Common = $21,800 x ($230,000 ÷ $440,000) = $21,800 x 52.2727% = $11,395

[Note : 2100*100 = 210,000; 4600*50 = 230,000; 210,000+230,000 = 440,000]

TOTAL Preferred Dividend = $29,400 + $14,700 + $10,405 = $54,505

TOTAL Common Dividend = $16,100 + $11,395 = $27,495