Question

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

4% Preferred Stock—$10 par value, outstanding 18,200 shares $ 182,000

Common Stock—$100 par value, outstanding 32,400 shares 3,240,000

Retained Earnings 684,000

Assuming that the directors decide to declare total dividends in the amount of $333,000, 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 $

*Can someone please help me and show all the steps. I have been stuck on this and confused. I have tried getting help and the answers still come out to be wrong. Can you check to make sure it is correct before posting? Thank you.*

Answer 1

	The preferred stock is cumulative and fully participating.
	Hence, the dividend is paid to the preference shareholders first including any arrears and balance paid to common shareholders
	Preferred:
	Current year dividend=Value of preferred stock*Preferred stock%=182000*4%=$ 7280
	Previous year dividend=182000*4%=$ 7280
	Total dividend payable=7280+7280=$ 14560
	Common:
	Dividend payable to common shareholders=Total dividend-Dividend payable to preference shareholders=333000-14560=$ 318440
	Preferred	common
	14560	318440