Question

In: Accounting

Baur Company has 21,000 shares of $10 par value, 8% preferred stock and 500,000 shares of...

Baur Company has 21,000 shares of $10 par value, 8% preferred stock and 500,000 shares of $1 par value common stock outstanding. As of December 31, 2018, it had $900,000 of Retained earnings. On December 31, 2018, the Board of Directors is considering the distribution of a cash dividend to the common and preferred stockholders. No dividends were declared in 2016 and 2017 and no dividends were in arrears prior to 2016. The company is considering the following options.

Option 1 The preferred stock is noncumulative and the dividend for 2018 would be $30,000.

Option 2 The preferred stock is cumulative and the dividends would be $30,000.

Option 3 The preferred stock is cumulative and the dividends would be $75,000.

Required: For each scenario, determine the dollar amount of dividends that would be paid to each class of stockholder.

Define the following as they pertain to dividend distribution: a. Date of declaration b. Date of record c. Date of payment

On which of these dates (date of declaration, date of record or date of payment) would a company NOT make a journal entry?

Solutions

Expert Solution

Following Details are given :

21000 shares, 8% Preferred Stock of $10 par value

5,00,000 shares , common stock of $1 par value

Now the Solution is :

Option 1: If the preferred stock is noncumulative and the dividend for 2018 would be $30,000 then total dividend of $30000 will be given to common stockholder as noncumulative preferred stock does not issue any omitted or unpaid dividends. This additional dividend is typically designed to be paid out only if the amount of dividends received by common stockholders is greater than a predetermined per-share amount.

Option 2: If the preferred stock is cumulative and the dividends would be $30,000 then firstly, (21,000 shares * $10 * 8%) $16,800 will be paid to preferred stockholder then the remaining amount of $13,200 ($30,000-$16,800) will be given to common stockholders.

Option 3: If the preferred stock is cumulative and the dividends would be $75,000 then first (21,000 shares * $10 * 8%) $16,800 will be paid to preferred stockholder then the remaining amount of $58,200 ($75,000-$16,800) will be given to common stockholders.

a) Date of Declaration = 31st December 2018 because on that date, the board of directors is considering the distribution of a cash dividend.

b) Date of Record = 31st March 2018 because typically, if the exact date is not given, then we will have to consider the date on which financial year-end as the date of record i.e 31st March 2018.

c) Date of Payment = 31st March 2018 because the dividend should be paid on the record date of such declaration i.e 31st March 2018.

On the Date of Declaration i.e 31st December 2018, the company will not make a journal entry because on that date, no liabilities will be going to pay off or no future asset will be made. The Journal Entries will be made on the date of record in books and the date of payment.


Related Solutions

Bohemian Company has 500,000 shares of no par common stock with a stated value of $8...
Bohemian Company has 500,000 shares of no par common stock with a stated value of $8 per share issued and outstanding as of January 1, originally issued for $14 per share. During 2018, Bohemian Company had the following transactions involving its own stock: On March 6, acquired 27,965 shares of treasury stock at a cost of $12 per share On April 18, resold 5,280 shares of treasury stock at $19 per share. On June 11, resold an additional 2,210 shares...
1. Lott Co. has outstanding 20,000 shares of 8% preferred stock with a $10 par value...
1. Lott Co. has outstanding 20,000 shares of 8% preferred stock with a $10 par value and 100,000 shares of $3 par value common stock. Dividends have been paid every year except last year and the current year. If the preferred stock is cumulative and fully participating and $131,000 is distributed, the common stockholders will receive: Select one: a. $0 b. $51,000 c. $61,000 d. $69,000 e. $85,000 2. What effect will the acquisition of treasury stock have on earnings...
1. Lott Co. has outstanding 20,000 shares of 8% preferred stock with a $10 par value...
1. Lott Co. has outstanding 20,000 shares of 8% preferred stock with a $10 par value and 100,000 shares of $3 par value common stock. Dividends have been paid every year except last year and the current year. If the preferred stock is cumulative and fully participating and $131,000 is distributed, the common stockholders will receive: Select one: a. $0 b. $51,000 c. $61,000 d. $69,000 e. $85,000 2. What effect will the acquisition of treasury stock have on earnings...
Pharoah, Inc. has $500,000, $0.50, no par value preferred shares (50,000 shares) and $1,000,000 of no...
Pharoah, Inc. has $500,000, $0.50, no par value preferred shares (50,000 shares) and $1,000,000 of no par value common shares outstanding (80,000 shares). No dividends were paid or declared during 2018 and 2019. The company wants to distribute $314,000in dividends on December 31, 2020. Calculate the amount of dividends to be paid to each group of shareholders (i.e. preferred and common), assuming the preferred shares are non-cumulative and non-participating. Preferred Common Total Dividends = Calculate the amount of dividends to...
Sunland, Inc. has $500,000, $0.50, no par value preferred shares (50,000 shares) and $1,000,000 of no...
Sunland, Inc. has $500,000, $0.50, no par value preferred shares (50,000 shares) and $1,000,000 of no par value common shares outstanding (80,000 shares). No dividends were paid or declared during 2018 and 2019. The company wants to distribute $320,000 in dividends on December 31, 2020. QUESTIONS: A) Calculate the amount of dividends to be paid to each group of shareholders (i.e. preferred and common), assuming the preferred shares are non-cumulative and non-participating. Preferred Common Total dividends $ $ B) Calculate...
A corporation has 1,500 shares of 10 percent, $40 par-value preferred stock and 10,000 shares of...
A corporation has 1,500 shares of 10 percent, $40 par-value preferred stock and 10,000 shares of $3 par-value common stock outstanding. If the board of the directors decides to distribute dividends totaling $38,000, the common stockholders will receive a dividend of
The Barney company has outstanding stock as follows: 10% preferred stock 10,000 shares $10 par cumulative...
The Barney company has outstanding stock as follows: 10% preferred stock 10,000 shares $10 par cumulative and participating Common stock 60,000 shares $5 par The preferred stock is permitted to participate after common receives $1 per share. The participation is on a total par relationship. There are no arrears going into the first year. Prepare a dividend allocation schedule including a participation schedule showing total dollars and per share calculations assuming the following dividends are declared. Year 1 $0 Year...
Finishing Touches has two classes of stock authorized: 8%, $10 par preferred, and $1 par value...
Finishing Touches has two classes of stock authorized: 8%, $10 par preferred, and $1 par value common. The following transactions affect stockholders’ equity during 2018, its first year of operations: January 2 Issues 100,000 shares of common stock for $34 per share. February 6 Issues 2,900 shares of 8% preferred stock for $12 per share. September 10 Repurchases 10,000 shares of its own common stock for $39 per share. December 15 Reissues 5,000 shares of treasury stock at $44 per...
a. Chile Co. has 1,000 shares of 8%, $50 par value,cumulative preferred stock and 50,000...
a. Chile Co. has 1,000 shares of 8%, $50 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2016.  In 2016, $10,000 of dividends are declared and paid. No dividends were paid in2015.  What are the dividends received by the common stockholders in 2016?b. The entry to record the full payment of the premium on a two-year insurance policy would be:-debit to prepaid insurance, credit to accounts receivable-debit to prepaid insurance, credit to...
Exercise 15-8 Otis Thorpe Corporation has 10,000 shares of $100 par value, 8% preferred stock and...
Exercise 15-8 Otis Thorpe Corporation has 10,000 shares of $100 par value, 8% preferred stock and 50,000 shares of $10 par value common stock outstanding at December 31, 2014.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, 2011, what are the dividends in arrears that should be reported on the December 31, 2014, balance sheet? The dividends in arrears to be...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT