Question

The outstanding capital stock of Sandhill Corporation consists of 2,200 shares of $100 par value, 7% preferred, and 4,900 shares of $50 par value common.

Assuming that the company has retained earnings of $88,000, 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.

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

Preferred		Common
$ 15400		$ 72600

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

Preferred		Common
$ 46200		$ 41800

(c) The preferred stock is cumulative and 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
$		$

I'm stuck on part C. I know my answers are correct for part A and B. Thanks

Answer 1

Part: C

Preferred	Common
$ 57,862	$ 30,138

Explanation:

1) Total Dividend: $ 88,000

2) Common Stock: 4900 *$50 per share = $ 245,000

3) Pref. stock : 2200 * $ 100 per share = $ 220,000

Total = $245,000 + $ 220,000 = $ 465,000

4) Preferred Dividend, 2 prior years

= 2,200 shares x $100 par value x 7% dividend x 2

= $ 30,800

5): Preferred Dividend, this year

= 2,200 shares x $100 par value x 7% dividend

= $15,400

6):Common Dividend

= $ 245,000x 7% dividend

= $ 17,150

7) Remaining Payout

= $88,000 - $30,800 - $15,400 - $17150

= $24,650

8) Participating Payout Preferred

= $24,650 x ($220,000 ÷ $465,000)

= $ 11,662

9) Common

= $24,650 x ($245,000÷ $465,000)

= $12,988

10)Total Preferred Dividend

= $ 30,800 + $ 15,400 + 11,662

=$ 57,862

11) Total Common Div:

= $ 17,150 + 12,988

= $ 30,138