3,600,000 shares of no-par common stock were authorized; 1,050,000 shares were i
ID: 2347834 • Letter: 3
Question
3,600,000 shares of no-par common stock were authorized; 1,050,000 shares were issued on January 1, 2010, at $46 per share. 1,200,000 shares of $100 par value, 10.5% cumulative, preferred stock were authorized, and 420,000 shares were issued on January 1, 2010, at $132 per share. Net income for the years ended December 31, 2010, 2011, and 2012, was $15,750,000, $22,350,000, and $26,100,000, respectively. No dividends were declared or paid during 2010 or 2011. However, on December 17, 2012, the board of directors of Permabilt Corp. declared dividends of $37,200,000, payable on February 9, 2013, to holders of record as of January 4, 2013. Of the total amount of dividends declared during 2012, how much will be received by preferred shareholders?Explanation / Answer
January 1
Dr. Cash ((1,050,000 @ $46) + (420,000 @ $132)).......... 103,740,000
Cr. Common Stock (1,050,000 shares @ $46 per share)........... 48,300,000
Cr. Preferred Stock (420,000 shares @ $100 per share)............42,000,000
Cr. Additional Paid-In Capital--Preferred (420,000 @ $32).........13,440,000
To record stock issuances.
December 17
Dr. Retained Earnings............................................37,200,000
Cr. Dividends Payable....................................................37,200,000
To record the declaration of dividends.
February 9
Dr. Dividends Payable..............................................37,200,000
Cr. Cash......................................................................37,200,000
To record the payment of dividends.
Preferred shareholders are entitled to two years of dividends in arrears (for 2008 and 2009), as well as their current year preference (for 2010).
420,000 shares * $100 par per share * 10.5% = $4,410,000 per year * 3 years = $13,230,000
January 1
Dr. Cash ((1,050,000 @ $46) + (420,000 @ $132)).......... 103,740,000
Cr. Common Stock (1,050,000 shares @ $46 per share)........... 48,300,000
Cr. Preferred Stock (420,000 shares @ $100 per share)............42,000,000
Cr. Additional Paid-In Capital--Preferred (420,000 @ $32).........13,440,000
To record stock issuances.
December 17
Dr. Retained Earnings............................................37,200,000
Cr. Dividends Payable....................................................37,200,000
To record the declaration of dividends.
February 9
Dr. Dividends Payable..............................................37,200,000
Cr. Cash......................................................................37,200,000
To record the payment of dividends.
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