Question

Common and preferred stock-issuances and dividends

Permabilt Corp. Was incorporated on January 1, 2016, and issued the following stock for cash:

4,000,000 shares of no-par common stock were authorized; 1,750,000 shares were issued on January 1, 2016, at $45 per share.

1,800,000 shares of $100 par value, 7.5% cumulative, preferred stock were authorized, and 840,000 shares were issued on January 1, 2016, at $105 per share.

Net income for the years ended December 31, 2016, 2017,and 2018 was $38,000,000, $46,000,000, and $57,000,000, respectively.

No dividends were declared or paid during 2016 or 2017. However, on December 17, 2018, the board of directors of Permabilt Corp. declared dividends of $64,000,000, payable on February 9, 2019, to holders of record as of January 4, 2019.

Required:

a. Use the horizontal model (or write the entry) to show the effects of

1. The issuance of common stock and preferred stock on January 1, 2016.

2. The declaration of dividends on December 17, 2018.

3. The payment of dividends on February 9, 2019.

b. Of the total amount of dividends declared during 2018, how much will be received by preferred shareholders?

Answer 1

Question -a :

Date	Particulars	Debit	Credit
1-Jan-16	Cash	$       7,87,50,000
	Common Stock		$    7,87,50,000
	To Record issue of Common Stock
1-Jan-16	Cash	$       8,82,00,000
	7.5% Cumulative, Prefered Stock		$    8,40,00,000
	Additional Paid in Capital		$        42,00,000
	To Record issue of 7.5% Cummulative Prefered Stock
9-Feb-19	Retained Earnings	$       6,40,00,000
	Dividend Payable		$    6,40,00,000
	To Record Dividend Payable

Question No. b:

Particulars	Amount	Amount
Total Dividend Declared		$    6,40,00,000
Less: Cumulative Preferred Stock Dividend Payable
2016	$          63,00,000
2017	$          63,00,000
2018	$          63,00,000
Dividend Payable to Preferred Stock Holders		$    1,89,00,000
Dividend to Common stock Holders		$    4,51,00,000