The outstanding capital stock of Manners Corporation consisted of 4,000 shares o

Question

The outstanding capital stock of Manners Corporation consisted of 4,000 shares

of 10 percent preferred stock, $200 par value, and 40,000 shares of no-par

common stock with a stated value of $200. The preferred was issued at $445,

the common at $510 per share. On January 1, 20x5, the retained earnings of the

company were $330,000. During the succeeding five years, net income was as

follows:

2005 $740,500

2006 470,000

2007 53,000

2008 180,000

2009 638,500

No dividends were in arrears as of January 1, 20x5, and during the five years

20x5-20x9, the board of directors declared dividends in each year equal to net

income of the year.

Prepare a schedule showing the dividends declared each year on each class of

stock assuming the preferred stock is:

a. Cumulative.

b. Noncumulative.

Explanation / Answer

Question a. Year 2005 2006 2007 2008 2009 Pref Dividend Arear 0 0 0 80000 80000 Pref Dividend for the year 80000 80000 80000 80000 80000 Total Preferred Dividend 80000 80000 80000 160000 160000 Common Dividend 660500 390000 53000 100000 478500 Dividend Declared 740500 470000 133000 260000 638500 Dividend Paid: Pref Dividend 80000 80000 0 80000 160000 Common Dividend 660500 390000 53000 100000 478500 Total dividend Paid 740500 470000 53000 180000 638500 Arear Dividend 0 0 80000 80000 0 Question b. Year 2005 2006 2007 2008 2009 Pref Dividend Arear 0 0 0 0 0 Pref Dividend for the year 80000 80000 0 80000 80000 Total Preferred Dividend 80000 80000 0 80000 80000 Common Dividend 660500 390000 53000 100000 558500 Dividend Declared 740500 470000 53000 180000 638500 Dividend Paid: Pref Dividend 80000 80000 0 80000 80000 Common Dividend 660500 390000 53000 100000 478500 Total dividend Paid 740500 470000 53000 180000 638500 Arear Dividend 0 0 0 0 0

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