Griseta Corporation was organized on January 1, 2011. During its first year, the

Question

Griseta Corporation was organized on January 1, 2011. During its first year, the corporation issued 2,000 shares of $50 par value preferred stock and 100,000 shares of $10 par value common stock. At December 31, the company declared the following cash dividends: 2011, $6,000; 2012, $12,000; and 2013, $28,000. (a) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 7% and not cumulative. 2011 2012 2013 Allocation to preferred stock $ $ $ Allocation to common stock $ $ $ (b) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 8% and cumulative. 2011 2012 2013 Allocation to preferred stock $ $ $ Allocation to common stock $ $ $ (c) Journalize the declaration of the cash dividend at December 31, 2013, under part (b). (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit

Explanation / Answer

use these steps..... pls rate if....satisfied Preferred shareholders receive dividends before common share holders. 2,000 x 50 x 7% = $7,000 annual preferred dividends 2011, $6,000; Since only $6,000 in dividends were given, the preferred share holders would get it all, leaving nothing for common shareholders. 2012, $12,000; Preferred would get $7,000 Common would get $5,000 2013, $28,000. Preferred would get $7,000 Common would get $21,000 The difference between cumulative and non-cumulative, is that cumulative preferred stock accumulates any dividends in arrears (owed) until they are finally paid. For instance, in the example you're given. 2,000 x 50 x 7% = $7,000 annual preferred dividends 2011, $6,000; Since only $6,000 in dividends were given, the preferred share holders would get it all, leaving nothing for common shareholders. There would also be $1,000 in dividends in arrears (owed). That would be carried over to the next year. 2012, $12,000; Not only would preferred shareholders get the $7,000 for this year, they would also receive the $1,000 in dividends in arrears from the previous year, for a total of $8,000. Common shareholders would receive $4,000. 2013, $28,000. With no dividends in arrears, at this point, preferred would get $7,000 Common would get $21,000

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