Question

Exercise 15-9 Sage Corporation has 10,500 shares of $100 par value, 8%, preferred stock and 48,100 shares of $10 par value common stock outstanding at December 31, 2017. Answer the questions in each of the following independent situations. (a) If the preferred stock is cumulative and dividends were last paid on the preferred stock on December 31, 2014, what are the dividends in arrears at December 31, 2017? Amount of dividends in arrears How should these dividends be reported? The cumulative dividend is as a liability. (b) If the preferred stock is convertible into 7 shares of $10 par value common stock and 4,300 shares are converted, what entry is required for the conversion assuming the preferred stock was issued at par value? (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) Account Titles and Explanation Debit Credit

Answer 1

a) Preferred Stock, Shares Par value of shares Value of preferred stock (10,500 x 100) Dividend % on preferred stock Dividends in arrears (2015 - 2017) Amount of cummulative dividend (1,050,000 x 8% x 3 years) S $ 10,500 100 1,050,000 896 3 years $ 252,000 Amount of dividends in arrears $ 252,000 The Cumulative dividend is not reported as a liability. Analysis: Cummulative dividends is disclosed in a note to the stockholders' equity section of balance sheet. Debit Credit 430,000 (b) Account Titles and Explanation Preferred stock (4,300 shares x $ 100) 1 Common stock (4,300 shares x 7 x $ 10) Paid in capital in excess of par - Common stock (430,000 - 301,000) * Note 7 common shares issued for every preferred stock 301,000 129,000 (c) Sage Corporation Balance Sheet (Partial) Paid in capital Preferred Stock Paid in capital in excess of par $ 1,050,000 73,500 Working Notes: Par Value (10,500 x 100) Paid in capital (10,500 x 7) 1,050,000 73,500