Question

Question 3 1 pts The owners' equity section of a firm includes (1) $10,000 of 8%, $100 par cumulative preferred stock, and (2) $40,000 of $5 par common stock. There is additional paid-in capital on both issues. The preferred participates up to an additional 4% and there are two years of dividends in arrears as of the beginning of the current year. If the firm pays $7,100 in dividends, what amount is allocated to common? 0 $4,400 O $3,200 O $4.700 O $6,000

Answer 1

Answer 1 (Que 3).
The previous period's unpaid dividend will be paid if the preference share is cumulative.
Total dividends			$            7,100
Less: Preferred dividends
Preferred dividends : current year (10000*8%)		$                     800
Preferred dividends : previous two years (800*2)		$                 1,600	$            2,400
Remaining dividends paid to common			$            4,700

Answer 2
Reduction in other assets			$        150,000
Reduction in property, plan and equipment net			$        350,000
Deficit retained paid in capital			$        400,000
Total reductions			$        900,000
Less: Reduce the additional paid in capital in amount of			$        300,000
Reduce the common stock account in amount of			$        600,000

Answer 3
Number of common share holding before stock dividends			10,000
Number of common share received in the form of stock dividend			2,000
Number of common share holding after stock dividends			12,000
Multiply: dividend per share received			$               1.50
Dividend income			$          18,000

	Answer 4
Apr 1, 20X3	Dividends (This account is closed to retained earnings)	$              100,000
	Notes payable		$             100,000
	To record dividends.
Mar 31, 20X4	Interest expense (100000*10%)	$                 10,000
	Notes payable	$              100,000
	Cash		$             110,000
	To record payment made to notes.

Debit retained earnings by $100,000 on Apr 1, 20X3

Debit interest expense for $10,000 on March 31, 20X4