   Chapter 16, Problem 2P ### 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
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# Otter Tail, Inc., began operations in January 2015 and had the following reported net income or loss for each of its 5 years of operations: At December 31, 2019, Otter Tail’s capital stock was comprised of the following: Otter Tail has never paid a cash or stock dividend. There has been no change in the capital accounts since Otter Tail began operations. The appropriate state law permits dividends only from retained earnings.Required:Prepare a worksheet showing the maximum amount available for cash dividends on December 31, 2019, and how it would be distributable to the holders of the common shares and each of the preferred shares. Show supporting computations in good form.

To determine

Prepare a worksheet by stating the maximum amount available for cash dividend on December 31, 2019.

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.

Prepare a worksheet by stating the maximum amount available for cash dividend on December 31, 2019.

(Figure 1)

Working note:

(1) Calculate the total amount of retained earnings:

Total amount of Retained earnings =(Net income of 2018+Net income of 2019Net loss $150,000 of 2015Net loss$130,000 of 2016Net loss $120,000 of 2017)=$1,000,000+$250,000$150,000$130,000$120,000=$850,000 (2) Calculate the total amount of distribution of remaining retained earnings: Total amount of distributionof remaining retained earnings} = (Total amount of retained earnings (1)8%preferred stock dividend in arrears for 2015-20184%preferred stock dividend for 20198% Preferred stock dividend for 2019Dividends on common stock at preferred rate )=($850,000$320,000$4,000$80,000$40,000)=\$406,000</

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