Question

Hello, I'm really struggling with this problem. So far I have calculated 48,000 for preferred and 38,000 for common, which I know to be incorrect per my professor.  I also calculated 64,703 as the preferred and 41,697 as the common but I know these to be incorrect as well. I'm just not sure how to calculate this. Please see the below.

The outstanding capital stock of Skysong Corporation consists of 2,000 shares of $100 par value, 8% preferred, and 5,100 shares of $50 par value common.

Assuming that the company has retained earnings of $86,000, all of which is to be paid out in dividends, and that preferred dividends were not paid during the 2 years preceding the current year, state how much each class of stock should receive under each of the following conditions.

1.  The preferred stock is cumulative and participating.

Preferred:
Common:

Answer 1

Ans:

The preferred stock is cumulative and participating.
				Preferred	Common	Total
	Past year's preferred divided 200000*8%*2			32000		32000
	Current year preferred divided 200000*8%			16000		16000
	Current year common dividend @ 8% = 255000*8%				20400	20400
	remainder to as per participation ratio (86000-68400)			7,737	9,863	17,600
	Total			55,737	30,263	86,000
	Note :
	Participation ratio =			Ratio
	Preferred stock=2000*100		200000	2/4.55	43.9600%
	Common stock =5100*50		255000	2.55/4.55	56.0400%
	Total		455000
	remainder =	17600
	Preferred = 17600*43.96%	7736.96
	Common = 17600*56.04%	9863.04