   Chapter 16, Problem 1P ### Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

#### Solutions

Chapter
Section ### Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
230 views

# Keener Company has had 1,000 shares of 7%, $100 par preferred stock and 40,000 sl1ares of$5 stated-value common stock outstanding for the last 3 years. During that period, dividends paid totaled $6,000,$28,000, and $30,000 for each year， respectively.Required:Compute the amount of dividends that Keener must have paid to preferred shareholders and common shareholders in each of the 3 years, given the following 3 independent assumptions: 1. Preferred stock is nonparticipating and noncumulative. 2. Preferred stock is nonparticipating and cumulative. 3. Preferred stock is fully participating and cumulative. To determine Calculate the amount of dividend Company K must pay to its preferred shareholders and common shareholders in each of the 3 years. 1. Preferred stock is nonparticipating and noncumulative. 2. Preferred stock is nonparticipating and cumulative. 3. Preferred stock in fully participating and cumulative. Explanation Dividends: This is the amount of cash distributed to stockholders by a company out its earnings, according to their proportion of shares invested in the company. Calculate the amount of dividend Company K must pay to its preferred shareholders and common shareholders in each of the 3 years when preferred stock is nonparticipating and noncumulative.  Year Particulars Preferred stock Common stock Total Year 1 Preferred stock$6,000 $0 - Total$6,000 $0$6,000 Year 2 Current preferred dividend (1,000×$100×7%) 7,000$0 - Remainder to  common $0$21,000 - Total $7,000$21,000 $28,000 Year 3 Current preferred dividend$7,000 $0 - Remainder to common$0 $23,000 - Total$7,000 $23,000$30,000

(Table 1)

Calculate the amount of dividend Company K must pay to its preferred shareholders and common shareholders in each of the 3 years when preferred stock is nonparticipating and cumulative.

 Year Particulars Preferred stock Common stock Total Year 1 Preferred stock ($1,000 is in arrears)$6,000 $0 - Total$6,000 $0$6,000 Year 2 Dividend in arrears $1,000$0 - Current preferred dividend $7,000$0 Remainder to  common $0$20,000 - Total $8,000$20,000 $28,000 Year 3 Current preferred dividend$7,000 $0 - Remainder to common$0 $23,000 - Total$7,000 $23,000$30,000

(Table 2)

Calculate the amount of dividend Company K must pay to its preferred shareholders and common shareholders in each of the 3 years when preferred stock in fully participating and cumulative.

 Year Particulars Preferred stock Common stock Total Year 1 Preferred stock ($1,000 is in arrears)$6,000 $0 - Total$6,000 $0$6,000 Year 2 Dividend in arrears $1,000$0 - Current preferred dividend $7,000$0 Common proportional share  (40,000×$5×7%) -$14,000 Remainder to  common (2) 2000 (3) 4000 - Total $10,000$18,000 $28,000 Year 3 Current preferred dividend$7,000 $0 - Common proportional share$0 $14,000 Remainder to common (5)$3,000 (6) $6,000 - Total$10,000 $20,000$30,000

(Table 3)

Working notes:

(1) Calculate the amount of extra dividend for the Year 2:

Extra dividend for the year 2 =(Total amount of dividend during the Year 2)(Dividend in arrears+Current preferred dividend+Common stock proportional share)=$28,000($1,000+$7,000+$14,000)=$28,000$22,000=\$6,000

(2) Calculate the amount of dividend transferred from preferred stock to common:

Amount of dividend remaining in the preferred stock }=A

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