Question

Flounder Company has outstanding 2,500 shares of $100 par, 6% preferred stock and 13,700 shares of $10 par value common. The following schedule shows the amount of dividends paid out over the last 4 years. Allocate the dividends to each type of stock under assumptions (a) and (b). Express your answers in per-share amounts using the format shown below. (Round the rate of participation to 4 decimal places, e.g. 1.4278%. Round answers to 2 decimal places, e.g. $6.85.) Assumptions (b) (a) Preferred, noncumulative, and nonparticipating Preferred Common Preferred, cumulative, and fully participating Preferred Common 13,700 to 0 Year Paid-out 2018 $13,700 $ 2019 $24,900 $ 13,700 " t 0 " 2020 $61,600 0 h 0 " 2021 $81,600 $ " 0 "

Answer 1

Solution:

		(a)Preferred, noncumulative, and nonparticipating		(b)Preferred, cumulative, and fully participating
Year	Paid-Out	Preferred	Common	Preferred	Common
2018	$ 13,700.00	$                   13,700.00	$                 -	$                13,700.00	$                 -
2019	$ 24,900.00	$                   15,000.00	$    9,900.00	$                16,545.48	$    8,354.52
2020	$ 61,600.00	$                   15,000.00	$ 46,600.00	$                39,793.28	$ 21,806.72
2021	$ 81,600.00	$                   15,000.00	$ 66,600.00	$                52,713.18	$ 28,886.82

Workings:

1) If the Preferred stock is noncumulative and nonparticipating, Only current year preferred stock dividends will be paid and remaining dividends will goes to common stock holders.

Preferred Dividend = 2500*100*6/100 = $15,000

In 2018, dividend payout is $ 13,700 and it is totally paid to preferred stock holders.

2) If the Preferred stock is cumulative and fully participating, Any dividend remainder after paying previous arrears, current year dividends will be distributed to both preferred and common stock as per pro rata basis based on capital holding.

Calculation are as follows:

In 2018, dividend payout is $ 13,700 and it is totally paid to preferred stock holders and there is arrears of $1,300 ($15000- $13700).

2019	Preferred	Common	Total	Calculation
Preferred Dividend Arrears	$          1,300.00	$                       -	$          1,300.00	15000-13700
Preferred Dividend Current Year	$        15,000.00	$                       -	$        15,000.00	2500*100*6/100
Common Dividend Current Year	$                       -	$          8,220.00	$          8,220.00	13700*10*6/100
Balance Dividend on Pro Rata Basis	$              245.48	$              134.52	$              380.00	380*250000/387000 , 380*137000/387000
Total Dividend	$        16,545.48	$          8,354.52	$        24,900.00
2020	Preferred	Common	Total	Calculation
Preferred Dividend Arrears	$                       -	$                       -	$                       -
Preferred Dividend Current Year	$        15,000.00	$                       -	$        15,000.00	2500*100*6/100
Common Dividend Current Year	$                       -	$          8,220.00	$          8,220.00	13700*10*6/100
Balance Dividend on Pro Rata Basis	$        24,793.28	$        13,586.72	$        38,380.00	38380*250000/387000 , 38380*137000/387000
Total Dividend	$        39,793.28	$        21,806.72	$        61,600.00
2021	Preferred	Common	Total	Calculation
Preferred Dividend Arrears	$                       -	$                       -	$                       -
Preferred Dividend Current Year	$        15,000.00	$                       -	$        15,000.00	2500*100*6/100
Common Dividend Current Year	$                       -	$          8,220.00	$          8,220.00	13700*10*6/100
Balance Dividend on Pro Rata Basis	$        37,713.18	$        20,666.82	$        58,380.00	58380*250000/387000 , 58380*137000/387000
Total Dividend	$        52,713.18	$        28,886.82	$        81,600.00