Question

Exercise 15-22 |x Your answer is incorrect. Try again. Flounder Company's ledger shows the following balances on December 31, 2020. 7% Preferred Stock-$10 par value, outstanding 21,800 shares Common Stock-$100 par value, outstanding 32,300 shares Retained Earnings $ 218,000 3,230,000 572,000 Assuming that the directors decide to declare total dividends in the amount of $346,000, 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 o decimal places, e.g. $38,487.) Preferred Common $ 66536 $ 279464 (b) The preferred stock is noncumulative and nonparticipating. (Round answers to 0 decimal places, e.g. $38,487.) Common Preferred X...... $ $ (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 489 7251

Answer 1

A)	The preferred stock is cumulative and fully participating :
	Preferred	Common
	$ 50,466	$ 295,534
B)	The preferred stock is Non cumulative and Non participating :
	Preferred	Common
	$ 15,260	$ 330,740
C)	The preferred stock is Non cumulative and is participating in distributions
	in excess of 10 % dividend rate on common stock :
	Preferred	Common
	$ 15,749	$ 330,251

EXPLANATION

A)	The preferred stock is cumulative and fully participating :
	Annual dividends for preferred stock = $ 15,260
	( $ 218,000 *7 % * )
	Here Preferred stock is cumulative so, one year's dividends
	are in arrears payable to preferred shareholders
	Hence, dividends payable to preferred shareholders = $ 30,520
	{$ 15,260 ( in arrears )+ $ , 15,260 ( current year )}
	Remaining dividends = $ 346,000 - $ 30,520 = $ 315,480
	Here, The preferred stock is fully participating
	Total capital value = $ 3,230,000 ( equity )+ $218,000 ( preferred )
	Total capital value = $ 3,448,000
	percentage of remaining dividends = remaining dividends / total capital value
	percentage of remaining dividends = $ 315,480 / $ 3,448,000
	So, percentage of remaining dividends = 9.1497 % of capital value ( rounded to 4 decimal )
	Total Dividends :
	Preferred stock = { $ 30,520 + ($218,000 * 9.1497 %)}
	Preferred stock = $ 50,466
	Common stock = { $ 346,000 - $ 50,466 }
	Common stock = $ 295,534

B)	The preferred stock is Non cumulative and Non participating :
	Annual dividends for preferred stock = $ 15,260
	( $ 218,000 *7 % * )
	Here Preferred stock is Non cumulative so, one year's dividends
	are in arrears not payable to preferred shareholders
	Hence, dividends payable to preferred shareholders = $ 15,260
	{$ 15,260 ( current year )only }
	Remaining dividends = $ 346,000 - $ 15,260= $ 330,740
	Here, The preferred stock is Non participating
	so, Entire remaining dividends payable to common stock
	shareholders that is $ 330,740
	Total Dividends :
	Preferred stock = $ 15,260
	Common stock = $ 330,740

C)	The preferred stock is Non cumulative and is participating in distributions
	in excess of 10 % dividend rate on common stock :
	Annual dividends for preferred stock = $ 15,260
	( $ 218,000 *7 % * )
	Here Preferred stock is Non cumulative so, one year's dividends
	are in arrears not payable to preferred shareholders
	Hence, dividends payable to preferred shareholders = $ 15,260
	{$ 15,260 ( current year )only }
	Remaining dividends = $ 346,000 - $ 15,260= $ 330,740
	Here, The preferred stock is participating in distributions in excess of
	10 % dividend rate on common stock
	So, $ 3,230,000 * 10 % = $ 323,000
	Remaining dividends = { $ 330,740   - $ 323,000} = $ 7,740
	Total capital value = $ 3,230,000 ( equity )+ $218,000 ( preferred )
	Total capital value = $ 3,448,000
	percentage of remaining dividends = remaining dividends / total capital value
	percentage of remaining dividends = $ 7,740 / $ 3,448,000
	So, percentage of remaining dividends = 0.2245 % of capital value (rounded to 4 decimal )
	Total Dividends :
	Preferred stock = { $ 15,260 + ($218,000 * 0.2245 %)}
	Preferred stock = $ 15,749
	Common stock = { $ 323,000 + ($ 7,740 - ($ 218,000*0.2245 % }
	Common stock = { $ 323,000 + ($ 7,740 - $ 489}
	Common stock = $ 323,000 +$ 7,251
	Common stock = $ 330,251