Question

Question 29
Flounder Corp. had $100,000 of 7%, $20 par value preferred stock and 12,000 shares of $25 par
value common stock outstanding throughout 2017.
Assuming that total dividends declared in 2017 were $64,000, and that the preferred stock is not
cumulative but is fully participating, common stockholders should receive 2017 dividends of what
amount?
Common stockholders should receive
$
Assuming that total dividends declared in 2017 were $64,000, and that the preferred stock is fully
participating and cumulative with preferred dividends in arrears for 2016, preferred stockholders
should receive 2017 dividends totaling what amount?
Preferred stockholders should receive
$
Assuming that total dividends declared in 2017 were $30,000, that the preferred stock is
cumulative, nonparticipating, and was issued on January 1, 2016, and that $5,000 of preferred dividends were declared and paid in 2016, the common stockholders should receive 2017 dividends totaling what amount? Common stockholders should receive

Answer 1

(a)

	Preferred	Common	Total
Current Year’s dividend,7%	$7000	$21000	$28000
Participating dividend 9%	9000	27000	36000
Totals	16000	48000	64000

Explanation:
The participating dividend was determined as follows:

Current year's dividend:
Preferred, 7% of $100000 = $ 7000
Common, 7% of $300000 = 21000 = $28000                                               

Amount available for participation
($64000 - $28000) = $ 36000

Par value of stock that is to participate
($100000 + $300000) = $400000

Rate of participation
($36000 ÷ $400000) = 9%

Participating dividend:
Preferred, 9% of $100000   $ 9000
Common, 9% of $300000     27000
Dividends                               $ 36000

(b)

	Preferred	Common	Total
Dividends in arrears ,7% of $100000	$7000		$7000
Current year’s dividend ,7%	7000	21000	28000
Participating dividend , 7.25%)($29000 ÷ $400000)	7250	21750	29000
Totals	$21250	$42750	$64000

(c)

	Preferred	Common	Total
Dividends in arrears (7% of $100000 - $5000)	$2000		$2000
Current year’s dividend ,7%	7000		7000
Remainder to common		21000	21000
Totals	$9000	$21000	$30000