Question

Blue Company’s ledger shows the following balances on December 31, 2020.

8% Preferred Stock—$10 par value, outstanding 20,700 shares $ 207,000

Common Stock—$100 par value, outstanding 30,300 shares 3,030,000

Retained Earnings 654,000

Assuming that the directors decide to declare total dividends in the amount of $332,000, 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 $

(b) The preferred stock is noncumulative and nonparticipating. (Round answers to 0 decimal places, e.g. $38,487.)

Preferred: $

Common: $

(c) The preferred stock is noncumulative and is participating in distributions in excess of a 10% 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, e.g. $38,487.)

Preferred $

Common $

Answer 1

Please find below table useful to compute desired results: -

C D E 10 20700 =D2*C2 100 30300 =D3*C3 654000 332000 1 Particulars Given 2 Preferred Stock =8/100 3 Common Stock 4 Retained Earnings 5 Dividends Declared 6 7 a) Preferred Stock is cumulative and fully participating 8 Annual Dividend of Preferred Stock =B2*E2 9 Dividend in arrear =B8*2 10 Remaining Dividend =E5-B9 11 Total Number of shares =D2+D3 12 %age of participation of common stock =D3/B11 13 %age of participation of preferred Stock =D2/B11 14 Preferred Stock Dividend =B9+B13*B10 15 Common stock Dividend =B12*B10 16 b) Preferred stock is noncumulative and nonparticipating 18 Preferred Stock Dividend =E2*B2 19 Common stock Dividend =E5-BIS 20 21 c) Preferred stock is noncumulative and is participating 22 Excess of dividend upto =10/100 23 Annual Dividend of preferred Stock =E2*B2 24 Total Dividend payable to common stockholder before participation 1=E3*B22 25 Remaining for Dividend =E5-B23-B24 26 Preferred Stock Dividend =B23+B25*B13 27 Common stock Dividend =B24+B25*B12 17

End results would be as follows: -

D E 20.700 207.000 30,300 3,030,000 654,000 | 332,000 A B C Particulars Given 2. Preferred Stock 8% 10 3 Common Stock | 100 4 Retained Earnings 5 Dividends Declared 6 7 a) Preferred Stock is cumulative and fully participating 8 Annual Dividend of Preferred Stock 16,560 9 Dividend in arrear 33.120 10 Remaining Dividend 298.880 11 Total Number of shares 51,000 12 %age of participation of common stock 59.4118% 13 %age of participation of preferred Stock 40.5882% 14 Preferred Stock Dividend 154,430 15 Common stock Dividend 177,570 16 b) Preferred stock is noncumulative and nonparticipating 18 Preferred Stock Dividend 16,560 19 Common stock Dividend 315,440 20 10% 21 c) Preferred stock is noncumulative and is participating 22 Excess of dividend upto 23 Annual Dividend of preferred Stock 16,560 24 Total Dividend payable to common stockholder before participation 303,000 25 Remaining for Dividend 12.440 26 Preferred Stock Dividend 21,609 27 Common stock Dividend 310,391