Question

Exercise 15-22 Sage Company's ledger shows the following balances on December 31, 2017. 7% Preferred Stock-$10 par value, outstanding 21,700 shares Common Stock-$100 par value, outstanding 32,700 shares Retained Earnings $ 217,000 3,270,000 593,000 Assuming that the directors decide to declare total dividends in the amount of $383,000, 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 (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 o decimal places, e.g. $38,487.) Preferred Common

Answer 1

cumulative preference shares are those shares under which any dividend not paid in any year is carried forward to future year and will be paid in preference to current year preferred and common stock dividend in that year.

Preferred dividend per year =Par value *dividend rate

                   = 217000* 7%

                  = 15190

a)

	Preferred stock	common stock	Total
prior period dividend	15190
current year preferred dividend	15190
Current year common stock dividend up to 7% dividend rate as on preferred stock		3270000*7%= 228900
Total dividend paid before participation	30380	228900	259280
participating dividend	123720*6.2231%= 7699	123720*93.7769%= 116021	123720
Total dividend paid	38079	344921	383000

#

Dividend left for participation : Total dividend declared - Total dividend paid before participation

                                    = 383000 -259280

                                   = 123720

calculation of weights based on par value:

	Par value	weights
Preferred stock	217000	217000/3487000= 6.2231%
common stock	3270000	3270000/3487000= 93.7769%
	3487000

b)

	Preferred stock	common stock	Total
current year preferred dividend	15190
Current year common stock dividend		367810
Total dividend paid	15190	367810	383000

c)

	Preferred stock	common stock	Total
current year preferred dividend	15190
Current year common stock dividend up to 10% dividend rate as on preferred stock		3270000*10%= 327000
Total dividend paid before participation	15190	327000	342190
participating dividend	40810*6.2231%= 2540	40810*93.7769%= 38270	40810
Total dividend paid	17730	365270	383000

#

Dividend left for participation : Total dividend declared - Total dividend paid before participation

                                    = 383000 -342190

                                   = 40810

calculation of weights based on par value:

	Par value	weights
Preferred stock	217000	217000/3487000= 6.2231%
common stock	3270000	3270000/3487000= 93.7769%
	3487000