The outstanding capital stock of Edna Millay Corporation consists of 2,200 share

Question

The outstanding capital stock of Edna Millay Corporation consists of 2,200 shares of $103 par value, 6% preferred, and 5,800 shares of $60 par value common.

Assuming that the company has retained earnings of $100,000, 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.

(a) The preferred stock is noncumulative and nonparticipating. (Round answers to 0 decimal places, e.g. $38,487.)

I already have the answer for this Preferred : 13596 Common : 86404

(b) The preferred stock is cumulative and nonparticipating. (Round answers to 0 decimal places, e.g. $38,487.)

(c) The preferred stock is cumulative and participating. (Round the rate of participation to 4 decimal places, e.g.1.4278%. Round answers to 0 decimal places, e.g. $38,487.)

Explanation / Answer

Preferred dividend = 2200 *103 *.06 = $ 13596

**   In case of participative preference shares , common stock dividend = rate of preferred dividend and then any surplus profit is distributed in ratio of captial investment

Preferred stock = 2200 * 103 = $ 226600

common stock = 5800*60 =$ 348000

Distrbution of current dividend and past dividend to preference shares = 40788

      Distribution of dividend to common stock = $ 348000 * .06 =$ 20880

surplus profit after distribution of dividend to both shareholders

     100,000 - 40788 -20880 = $ 38332 in 226600 : 348000

Preferred dividend = 38332 *226600 /(226600 +348000)

                                       = 38332 *226600/ 574600

                                         = 15116.66

common stock = 38332 - 15116.66 = $ 23215.34

Preferred dividend common dividend case a 13596 100,000 - 13596 = $ 86404 case b 13596 for current year + (13596 *2 ) for past 2 years 100,000 - 40788 13596 + 27192   = $ 40788 $ 59212 case c 55904.66     [40788+15116.66] 44095.34       [23215.34+20880]

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