Question

Exercise 15-22 Pina Company's ledger shows the following balances on December 31, 2017 4% Preferred Stock-$10 par value, outstanding 18,000 shares Common Stock-$100 par value, outstanding 27,500 shares Retained Earnings $180,000 2,750,000 577,000 Assuming that the directors decide to declare total dividends in the amount of $380,000, 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

Answer 1

Given that-
4% preferred stock , 18000 outstanding					180000
Common stock, 27500 outstanding					2750000
retained earning					577000
Answer a)
	Arrear dividend for preferred stock =		7200		7200
	Current year dividend for preferred stock =		7200		7200
	Total dividend to preferred stock =				14400
	Dividend to common sharestock = 2750000*4%				110000
	Total distributable amount =				380000
	Less : preferred and common dividend =	124400			124400
	Remaining amount to be distributed proportionately =				255600
	Share of preferred stock = 255600*180000/(180000+2750000)				15702
	Share of common stock = 255600*2750000/(180000+2750000)				239898
	Total				255600
	Total dividend paid under a)
	Preferred	30102			30102
	Common	349898			349898
Answer b)
	In this situation preferred stock will not get any arrear share and not excess dividend
	Current year dividend for preferred stock =		7200		7200
	Common dividend = 380000-7200				372800
	Preferred				7200
	Common				372800
Answer c)
	Current year dividend for preferred stock =		7200		7200
	Total dividend to preferred stock =				7200
	Dividend to common sharestock = 2750000*6%				165000
	Total distributable amount =				380000
	Less : preferred and common dividend =	172200			172200
	Remaining amount to be distributed proportionately =				207800
	Share of preferred stock = 207800*180000/(180000+2750000)				12765.9
	Share of common stock = 207800*2750000/(180000+2750000)				195034
	Total				207800
	Total dividend paid under c)
	Preferred				19965.9
	Common				360034