Question

In: Accounting

Sage Company’s ledger shows the following balances on December 31, 2020. 4% Preferred Stock—$10 par value,...

Sage Company’s ledger shows the following balances on December 31, 2020.

4% Preferred Stock—$10 par value, outstanding 18,200 shares $ 182,000

Common Stock—$100 par value, outstanding 32,400 shares 3,240,000

Retained Earnings 684,000 Assuming that the directors decide to declare total dividends in the amount of $333,000, determine how much each class of stock should receive under each of the conditions stated below. One year‘s dividends are in arrears on the preferred stock.

(a) The preferred stock is cumulative and fully participating. (Round the rate of participation to 4 decimal places, e.g.1.4278%. Round answers to 0 decimal places, e.g. $38,487.)

(b) I already have

(c) The preferred stock is noncumulative and is participating in distributions in excess of a 7% dividend rate on the common stock. (Round the rate of participation to 4 decimal places,

e.g.1.4278%. Round answers to 0 decimal places, e.g. $38,487.)

*Can someone please help me, I have been getting the wrong answer and it is annoying!*

Solutions

Expert Solution

a) i) The preferred stock is cumulative and fully participating.
Calculation of Dividend
Annual Dividend of Preferred Stock = 182,000 x 4% = 7280
Last Year dividend is in arrear so this Year total Dividend payable to Prefer Stockholder:
7280 x 2 = 14,560
Remaining Dividend to be payable to common stockholders = 333,000 – 14,560 = 318,440
c) The preferred stock is noncumulative and is participating in distributions in excess of a 7% dividend rate on the common stock
Calculation of Dividend
Annual Dividend of Preferred Stock = 182,000 x 4% = 7280
Last Year dividend is in arrear, but since the preferred stock is non cumulative they will not get the last year dividend.
Remaining Dividend = 333,000 – 14,560 = 318,440
Maximum dividend that can be given to common stock holder per share = 7% of $ 100 = $7
Preferred Common Total
Current Year
Preferred (182,000 x 4%) $    7,280.00 $           7,280.00
Common (7% of $3240000) $ 226,800.00 $      226,800.00
Balance amount of dividend distributed on prorata [Refer Note] $    5,261.09 $    93,658.91 $        98,920.00
TOTAL DIVIDEND $ 12,541.09 $ 320,458.91 $      333,000.00
Note
Additional amount available for participation $        98,920.00
(333000-$7280-$226800)
Par value of stock that is to participate $ 3,422,000.00
($182000+$3240000)
Rate of Participation 2.8907%
(95920/3422000)
Participating dividend
Preferred (2.8%*$182000) $5261.08
Common (2.8%*$3240000) $93658.91

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