Requirements: 1) Is Precious Metal\'s preferred stock cumulative or noncumulativ

Question

Requirements:

1) Is Precious Metal's preferred stock cumulative or noncumulative or noncumulative? How can you tell?

2) Precious Metal declares cash dividends of $25,000 for 2010. How much of the diviends goes to preferred? How much goes to common?

3) Precious Metal passes the preferred dividend in 2011 and 2012. In 203 the company declares cash dividends of $35,000. How much of the dividend goes to preferred? How much goes to common?

Paid in Capital Preferred stock, 5%, $15 par, 7,000 shares authorized, 5,500 shares issued $82,500 Common stock, $0.30 par, 1,200,000 shares authorized and issued 360,000 Paid-in capital in excess of par-common 400,000 Total paid in capital $842,5000 Retained earnings 260,000 Total stockholders' equity $1,102,500

Explanation / Answer

1) Normally for cumulative prefered stock it is written with the stock that it is cumulative and if nothing is written then these are considered non-cumulative.

If divident of the cumulative is not paid in any year then it reflects in financials. here the same is also not there and nothing is written then these are non cumulative only.

2) Cash divident in 2010 = 25000

Divident on prefered stock = 82500*5% = 4124

Divident to common stock = 25000-4124= 20875

3) It is assumed that in 2011 and 2012 divident was only passed not paid .Since these are non cumulative prefered stock divident of 2011 and 2012 will not be paid in current year even if not paid in those years.

Divident 35000

Prefered stock divident = 82500*5%=4124

Divident to common stock=35000-4124=30875

If these were cumulative preference shares:-

Divident = 35000

Divident of 2011 of prefered stock=4124

Divident of 2012 of prefered stock= 4124

Divident of 2013 of prefered stock= 4124

Divident to common stock 2013=35000-4124-4124-4124=$22628

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