Question

BUS 203 - Review D 6. Treasury Stock that is reissued at an amount greater than cost will have whatan the following financial statement elements: 1 = increase D=Decrease NE = No effect tained Income Stockholders' Paid-in Retained Assets Liabilities Equity Capital Earnings Income NENE NE NE NE NE CINE I NENE d. NE NE NE 7. Grayco Inc. had the following classes of stock outstanding as of December 31, 2019: - Common Stock, $20 par value, 50,000 shares outstanding - Preferred Stock, 8%, 100 par value, cumulative, non-participating 1,000 shares outstanding Dividends on Preferred Stock have been arrears for 2017 and 2018. On December 31, 2019, a total cash dividend of $80,000 was declared. What are the amounts of dividends payable on both the preferred and common stock respectively? a. $24,000 and $56,000 b. $16,000 and $64.000 c. $24,000 and $36,000 d. $80,000 and $0 8. The declaration of a cash dividend would have what effect on the financial elements: 1 = Increase D=Decrease NE = No effect # Assets Liabilities a. D bD C. NEL Stockholders' Pald-in Retained Net Equity Capital Earnings Income DNE D D DNED DNED NE DNEDD NE

Answer 1

7. Option A- $24,000 and $56,000

Preferred Shares : 1000

Par Value :100

Rate: 8%

Annual Preference Share dividend = (100*8%)*1000 = 8000

Our preference share is non participating so- dividend is paid, usually at a fixed rate. and cumulative - so if it cannot be paid in any year, accrues until it can.

So there was arrears for 2017 and 2018, then we could pay for 3 years.:2017,2018 and now 2019 at same rate:

=8000*3 = 24000

And as 80000 was declared as cash dividend, rest could be given to common stock holders:

80,000 - 24000 = 56,000

8. Option C

Assets	Liabilities	SE	Paid in Capital	RE	Net income
NE	I	D	NE	D	NE

Because, When a dividend is declared, the value of that dividend is deducted from its retained earnings and added to the dividends payable account of the liabilities. Also cash dividend reduces stockholders' equity and its total liability is increased for a while because the dividend is not yet paid.