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Exercise 15-21 The outstanding capital stock of Nash Corporation consists of 2,000 shares of $100 par...

Exercise 15-21

The outstanding capital stock of Nash Corporation consists of 2,000 shares of $100 par value, 9% preferred, and 4,600 shares of $50 par value common.

Assuming that the company has retained earnings of $81,500, 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.)

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

(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.)

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Answer #1

a) Preferred Dividends = $18000 , Common Dividends = $63500

Preferred Dividends = 2000 x 100 x 9% = 18000

Common Dividends = 81500 - 18000 = 63500

b) Preferred Dividends = $54000 , Common Dividends = $27500

Preferred Dividends = 18000 x 3 years = 54000

Common Dividends = 81500 - 54000 = 27500

c) Preferred Dividends = $57163   , Common Dividends = $24337

Preferred Dividends = 54000

Common Dividends = 4600 x 50 x 9% = 20700

Remaining Balance = 81500 - 54000 - 20700 = 6800

Participation rate - Common stock = 230000 / 430000 = 53.4884%

Participation rate - Preferred stock = 200000 / 430000 = 46.5116%

Apportioned to Common stock = 6800 x 53.4884% = 3637

Apportioned to Preferred stock = 6800 x 46.5116% = 3163

Total Dividend on Preferred Stock = 54000 + 3163 = 57163

Total Dividend on Common Stock = 20700 + 3637 = 24337  

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