Question

The outstanding capital stock of Splish Corporation consists of 1,800 shares of $100 par value, 7% preferred, and 4,500 shares of $50 par value common. Assuming that the company has retained earnings of $86,500, all of which is to be paid out in dividends, and that preferred dividends were not paid during the 2 years preceding the current year, state how much each class of stock should receive under each of the following conditions. (a) The preferred stock is noncumulative and nonparticipating. (Round answers to 0 decimal places, e.g. $38,487.) Preferred Common $enter a dollar amount rounded to 0 decimal places $enter a dollar amount rounded to 0 decimal places (b) The preferred stock is cumulative and nonparticipating. (Round answers to 0 decimal places, e.g. $38,487.) Preferred Common $enter a dollar amount rounded to 0 decimal places $enter a dollar amount rounded to 0 decimal places (c) The preferred stock is cumulative and 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 $enter a dollar amount rounded to 0 decimal places $enter a dollar amount rounded to 0 decimal places

Answer 1

	Answer
			Preferred	Common
	(a)	Noncumulative and nonparticipating	$                12,600	$       73,900
	(b)	Cumulative and nonparticipating	$                37,800	$       48,700
	(c)	Cumulative and participating	$                52,444	$       34,056

Workings:
		Total Cash	Preferred	Common
		Dividend Paid
(a)	Noncumulative and nonparticipating:	$                86,500
	Preferred dividend-current year	$              -12,600	$       12,600
	(1800 x $100 x 7%)
	Common dividend (Balance remaining)	$                73,900		$      73,900
	($86500 - $12600)
	Totals $		$       12,600	$      73,900

(b)	Cumulative and nonparticipating:	$                86,500
	Preferred dividend arrears	$              -25,200	$       25,200
	(1800 x $100 x 7% x 2 years)
	Preferred dividend-current year	$              -12,600	$       12,600
	(1800 x $100 x 7%)
	Common dividend (Balance remaining)	$                48,700		$      48,700
	($86500 - $25200 - $12600)
	Totals $		$       37,800	$      48,700

(c)	Cumulative and participating:	$                86,500
	Preferred dividend arrears	$              -25,200	$       25,200
	(1800 x $100 x 7% x 2 years)
	Preferred dividend-current year	$              -12,600	$       12,600
	(1800 x $100 x 7%)
	Common dividend	$              -15,750		$      15,750
	(4500 x $50 x 7%)
	Balance remaining (pro-rata on par value)	$                32,950	$       14,644	$      18,306
	Totals $		$       52,444	$      34,056

	Pro-rata distribution:
	Preferred par value (1800 x $100)	$ 1,80,000
	Common par value (4500 x $50)	$ 2,25,000
	Total par value $	$ 4,05,000
	Rate of participation ($32950/$405000)	$ 0
	Preferred dividend	$ 14,644
	($180000 x 8.1358%)
	Common dividend	$ 18,306
	($225000 x 8.1358%)
	Total $	$ 32,950