(Preferred Dividends) The outstanding capital stock of Pennington Corporation co
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Question
(Preferred Dividends)
The outstanding capital stock of Pennington Corporation consists of 2,500 shares of $101 par value, 6% preferred, and 5,900 shares of $52 par value common.
Assuming that the company has retained earnings of $85,000, all of which is to be paid out in dividends, and that preferred dividends were not paid during the 2 years preceding the current year, state how much each class of stock should receive under each of the following conditions.
Preferred
Common
Preferred
Common
Preferred
Common
AE15-21 Woolford Inc. declared a cash dividend of $1.01 per share on its 2.03 million outstanding shares. The dividend was declared on August 1, payable on September 9 to all stockholders of record on August 15. Prepare the journal entries necessary on those three dates.Explanation / Answer
a. Dividend for preferred stockholders = 2500*101*6% = 15,150
Dividend for common stockholders = 85,000-15,150 = 69,850
b. Dividend for preferred stockholders = 2500*101*6% *3 = 45,450 (as this includes preferred dividend for the previous 2 years also)
Dividend for common stockholders = 85,000-15,150 = 39,550
c. Dividend for preferred stockholders on account of preferred shares = 2500*101*6% *3 = 45,450 (as this includes preferred dividend for the previous 2 years also)
Remaining dividend = 85,000-15,150 = 39,550
As preferred shares are participating, part of the remaining dividend goes to them also.
Share of preferred stockholders = 2500*101 / (2500*101+5900*52) = 0.4515
So amount for preferred stockholders = 0.4515*39,550 = 17,855
and amount for common stockholders = 39,550-17,855 = 21,695
So total amount for preferred stockholders = 45,450+17,855 = 63,305
Amount for common stockholders = 21,695
Hope this helped ! Let me know in case of any queries.
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