Question

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

7% Preferred Stock—$10 par value, outstanding 20,500 shares		$ 205,000
Common Stock—$100 par value, outstanding 32,100 shares		3,210,000
Retained Earnings		585,000

Assuming that the directors decide to declare total dividends in the amount of $343,000, 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.)

Preferred		Common
$		$

(b) The preferred stock is noncumulative and nonparticipating. (Round answers to 0 decimal places, e.g. $38,487.)

Preferred		Common
$		$

(c) The preferred stock is noncumulative and is participating in distributions in excess of a 9% 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.)

Answer 1

Answer -

(a) The preferred stock is cumulative and fully participating.

Annual Dividend of preferred stock = 7%*$205000

Annual Dividend of preferred stock = $14,350

Last year dividend in arrear so this year

Total dividend payable to preferred stockholder = $14,350*2

Total dividend payable to preferred stockholder = $28700

Remaining Dividend = 343000 - 28700

Remaining Dividend = $314,300

Total Number of share = 28700 + 20500 = 49200

Percentage of participation of common stock = 20500/49200 = 41.6666%

Percentage of participation of common stock = 28700/49200 = 58.3333%

Preferred Stock Dividend = $28700 + 58.3333%*$314300

Preferred Stock Dividend = $ 212,042

Common Stock Dividend = 41.6666%*$314300

Common Stock Dividend = $130958

Preferred Stock Dividend = $ 212,042

Common Stock Dividend = $130,958

(b) The preferred stock is noncumulative and nonparticipating.

Annual Dividend of preferred stock = 7%*$205000

Annual Dividend of preferred stock = $14,350

Since it is noncumulative and nonparticipating

Preferred Stock Dividend = $ 14,350

Common Stock Dividend = $343000-$14350

Common Stock Dividend =$ 328,650

Preferred Stock Dividend = $ 14,350

Common Stock Dividend = $328,650

(c) The preferred stock is noncumulative and is participating in distributions in excess of a 9% dividend rate on the common stock.

Annual Dividend of preferred stock = 7%*205000

Annual Dividend of preferred stock =$ 14350

Since it is noncumulative

Total dividend payable to preferred stockholder before participation = $14350

Total Dividend payable to common stockholder before participation = 3210000*9% =$ 288,900

Remaining Dividend = $343000 - $14350-$288900

Remaining Dividend = $39,750

Preferred Stock Dividend = $14, 350+ 58.3333%*$39,750

Preferred Stock Dividend = $ 37,537

Common Stock Dividend = $288,900+ 41.6666%*$39,750

Common Stock Dividend = $305,462

Preferred Stock Dividend = $ 37,537

Common Stock Dividend =$ 305,462

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