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Intermediate Accounting: Reporting...

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

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Dividends Andrews Company has $80,000 available to pay dividends. It has 2,000 shares of 10%, $100 par, preferred stock and 30,000 shares of $10 par common stock outstanding. The preferred stock is selling for $125 per share, and the common stock is selling for $20 per share.

Required:

  1. 1. Next Level Determine the amount of dividends to be paid to each class of shareholder for each of the following independent assumptions:
    1. a. Preferred stock is nonparticipating and noncumulative.
    2. b. Preferred stock is nonparticipating and cumulative. Preferred dividends are 2 years in arrears at the beginning of the year.
    3. c. Preferred stock is fully participating and cumulative. Preferred dividends are 1 year in arrears at the beginning of the year.
  2. 2. For 1(a), compute the dividend yield on the preferred stock and the common stock.

1.

To determine

Ascertain the amount of dividend to be paid to each class of shareholder.

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.

Particulars Preferred stock amount  in $ Common  stock amount in  $
a.  
Preferred dividend (2,000×10%×$100)20,000-
Remainder to common ($80,000$20,000)-60,000
Total 20,00060,000
   
b.  
Dividends  in arrears (2×2,000×10%×$100)40,000-
Current preferred  dividend (2,000×10%×$100)20,000 
Remainder to common ($80,000$60,000)--
Total60,00020,000
   
c.  
Dividends  in arrears (1×2,000×10%×$100)20,000-
Current preferred  dividend (2,000×10%×$100)20,000-
Common proportional share (30,000×10%×$10)

2.

To determine

Calculate the dividend yield on the preferred stock and the common stock.

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