Question

Testbank Exercise 141 In each of the following independent cases, it is assumed that the corporation has $770,000 of 6% preferred stock and $3,080,000 of common stock outstanding, each having a par value of $10. No dividends have been declared for 2019 and 2020.

As of 12/31/21, it is desired to distribute $250,000 in dividends. How much will the preferred stockholders receive if their stock is cumulative and nonparticipating? Preferred stockholders receive $

As of 12/31/21, it is desired to distribute $770,000 in dividends. How much will the preferred stockholders receive if their stock is cumulative and participating up to 10% in total? Preferred stockholders receive

On 12/31/21, the preferred stockholders received a $250,000 dividend on their stock which is cumulative and fully participating. How much money was distributed in total for dividends during 2021? Money distributed

Answer 1

(a) How much will the preferred stockholders receive if their stock is cumulative and nonparticipating?

$138,600 ($770,000 x .06 x 3 yrs.).

(b) How much will the preferred stockholders receive if their stock is cumulative and participating up to 10% in total?

$169,400 [($770,000 x .06 x 3 yrs) + ($770,000 * (0.10 - 0.06))]

(c) How much money was distributed in total for dividends during 2021?

$880,400 ($630,400* to common and $250,000 to preferred)

* ($3,080,000 * 0.06) + [($250,000 - $138,600) / $770,000) * $3,080,000]