Question

Rensing, Inc., has $800,000 of 4% preferred stock and $1,200,000 of common stock outstanding, each having a par value of $10 per share. No dividends have been paid or declared during 2016 and 2017. As of December 31, 2018, it is desired to distribute $270,000 in dividends. Instructions Prepare a schedule showing how much the preferred and common stockholders will receive under each of the following assumptions: The preferred is noncumulative and (a) nonparticipating (b) nonparticipating. (c) participating (d) to 7% total The preferred is cumulative and The preferred is cumulative and fully The preferred is cumulative and participating

Answer 1

A) The Preferred is noncumulative and non participating

Particulars	Preferred Stock	Common Stock	Total
Current Year Dividend ($800,000*4%)	$32,000		$32,000
Reminder to Common		$ 238,000	$238,000
Total	$ 32,000	$ 238,000	$ 270,000

B) The preferred is cumulative and non participation

Particulars	Preferred Stock	Common Stock	Total
Dividend In Arrears ( $800,000*4%*2 year)	$64,000		$64,000
Current Year Dividend	$ 32,000		$ 32,000
Reminder to Common		$ 174,000	$ 174,000
Total	$ 96,000	$ 174,000	$ 270,000

C) The preferred is cumulative and fully participating

Particulars	Preferred Stock	Common Stock	Total
Divided in arriyers ($800,000*4%*2 years)	$64,000		$64,000
Current Year Divided	$ 32,000	$ 48,000	$80,000
Participating Divident ( $126,000/$2000,000	$50,400	$75,600	$126,000
Total	$ 146,400	$ 123,600	$ 270,000

D) The preferred is cumulative and participating to 7 % Total

Particulars	Preferred Stock	Common Stock	Total
Divided in arrears ($800,000*4%*2 years)	$64,000		$ 64,000
Current Year Dividend	$ 32,000	$ 48,000	$ 80,000
Participating Dividend 3%	$ 24,000	$36,000	$60,000
Remainder to Common Stock		$ 66,000	$66,000
	$120,000	$150,000	$ 270,000