Question

XYZ Company began operations on January 1, 2020. The company has the following items included in the owners' equity section of its balance sheet. 8% Preferred Stock, $100 par, 100,000 shares authorized, 25,000 shares issued and outstanding $2,500,000 Common Stock, $3 par, 500,000 shares authorized; 150,000 shares issued and outstanding 450,000 Additional paid-in capital 2,250,000 Total dividends declared and paid were: 2020 $170,000 2021 210,000 2022 240,000 A. Referring to the information above, if XYZ Company's preferred stock were CUMULATIVE, provide the dividends paid for 2022: 6 points, show your work for credit: Preferred Shareholders Common Shareholders 2022 B. Provide the payments for 2021 assuming XYZ Company's preferred stock is noncumulative, 4 pts:

Answer 1

A. As per Question, Total Dividend Declared in 2020 is $170,000.

First Dividend shall be paid to Preferrence shareholder.

So, Dividend for Cumulative Preferred stock for year 2020 is $2,500,000 X 8% = $200,000.

But dividend declared is $170,000 which is for Preferred Stock and balance $30,000 will be outstanding and will be paid first before other dividends.

For Common stock dividend is nil.

Now, as per question, Total Dividend Declared in 2021 is $210,000.

Dividend for Cumulative Preferred stock for year 2021 is $2,500,000 X 8% = $200,000 & balance outstanding for previous year is $30,000.

But dividend declared is $210,000 which is for Preferred Stock as balance $30,000 will be paid first and remaining $180,000 shall be paid for current year Preferred Stock dividend and balance $20,000 will be paid first before other dividends in subsequent year.

For Common stock dividend is nil.

Now, as per question, Total Dividend Declared in 2022 is $240,000.

Dividend for Cumulative Preferred stock for year 2022 is $2,500,000 X 8% = $200,000 & balance outstanding for previous year is $20,000.

Dividend declared is $240,000, in which dividend for Preferred Stock balance $20,000 will be paid first and $200,000 shall be paid for current year Preferred Stock dividend and remaining $20,000 shal be for Common Stock.

Dividend declared for Common Stock is S20,000.

and Dividend declared for Preferred Stock is $220,000.

B. As per Question, if preferred stock is non-cummulative than there is no obligation on company to pay the shareholders but shall be paid before the common stock. So, dividend declared in the year 2020 of $170,000 shall be paid to preferred stock holder and balance $30,000 will not be paid.

Now, as per question, Total Dividend Declared in 2021 is $210,000.

So, Dividend for Cumulative Preferred stock for year 2021 is $2,500,000 X 8% = $200,000.

And Dividend declared for Preferred Stockholder is $200,000 and balance $10,000 will be paid to Common Stockholder.