Question

When Crossett Corporation was organized in January Year 1, it immediately issued 5,700 shares of $46...

When Crossett Corporation was organized in January Year 1, it immediately issued 5,700 shares of $46 par, 6 percent, cumulative preferred stock and 9,000 shares of $7 par common stock. Its earnings history is as follows: Year 1, net loss of $17,700; Year 2, net income of $62,500; Year 3, net income of $110,100. The corporation did not pay a dividend in Year 1.

Required
a. How much is the dividend arrearage as of January 1, Year 2?
  



b. Assume that the board of directors declares a $42,964 cash dividend at the end of Year 2 (remember that the Year 1 and Year 2 preferred dividends are due). How will the dividend be divided between the preferred and common stockholders? (Amounts to be deducted should be indicated with minus sign.)

Homework Answers

Answer #1
a.
Dividend per year for preferred stockholders = Shares of preferred stock * Par value * Dividend % = 5700 * 46 * 6% 15732
Dividend arrearage as of January 1, year 2 15732
b.
Distribution to stockholders
Amount Preferred Common
Total dividend declared 42964
Year 1 Arrearage 15732 0
Year 2 Preferred dividends 15732 0
Available for common 11500
Distributed to common 0 11500
Total distribution 31464 11500
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