Question

Marigold Company’s ledger shows the following balances on December 31, 2017. 8% Preferred Stock—$10 par value, outstanding 20,400 shares $ 204,000 Common Stock—$100 par value, outstanding 27,300 shares 2,730,000 Retained Earnings 589,000 Assuming that the directors decide to declare total dividends in the amount of $396,000, 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 $Entry field with incorrect answer now contains modified data $Entry field with incorrect answer now contains modified data (b) The preferred stock is noncumulative and nonparticipating. (Round answers to 0 decimal places, e.g. $38,487.) Preferred Common $Entry field with correct answer 16320 $Entry field with correct answer 379680 (c) The preferred stock is noncumulative and is participating in distributions in excess of a 10% 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.) Preferred Common $Entry field with incorrect answer now contains modified data 8011 $Entry field with incorrect answer 109189

Answer 1

Computation of Preferred Dividends:

8% Preferred Stock—$10 par value, outstanding 20,400 shares

Total par value ($10 x 20,400 shares) $204,000

Rate of dividend 8%

Dividend - per year $16,320

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

Total divident declared $396,000

Less: Dividend for two years ($16,320 x 2) $32,640

Dividend payable to common stockholders $363,360

(b) The preferred stock is noncumulative and nonparticipating.

Total divident declared $396,000

Less: Dividend for one years ($16,320 x 1) $16,320

Dividend payable to common stockholders $379,680

(c) The preferred stock is noncumulative and is participating in distributions in excess of a 10% dividend rate on the common stock.

	Preferred	Common
Preferred dividend at 8% (204,000 x 8%)	$16,320
Common Dividend at 8% (2,730,000 x 8%)		$2,18,400
Extra dividend 2% to common stock (2,730,000 x 2%)		$54,600
Balance dividend $106,680 divided in the ratio of 204:2,730)	$7,417	$99,263
Total Dividends paid	$23,737	$3,72,263