Otis Thorpe Corporation has 10,580 shares of $100 par value, 5% preferred stock
ID: 2455833 • Letter: O
Question
Otis Thorpe Corporation has 10,580 shares of $100 par value, 5% preferred stock and 51,100 shares of $9 par value common stock outstanding at December 31, 2014.
Answer the questions in each of the following independent situations.
(a) If the preferred stock is cumulative and dividends were last paid on the preferred stock on December 31, 2011, what are the dividends in arrears that should be reported on the December 31, 2014, balance sheet?
How should these dividends be reported?
(b) If the preferred stock is convertible into 7 shares of $9 par value common stock and 4,900 shares are converted, what entry is required for the conversion assuming the preferred stock was issued at par value? (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit
(c) If the preferred stock was issued at $105 per share, how should the preferred stock be reported in the stockholders’ equity section? (Enter account name only and do not provide descriptive information.)
Otis Thorpe Corporation
Balance Sheet (Partial)
$
Explanation / Answer
a. Three years dividend is in arrears beginning from the year ended 31st dec 2012 to 31st dec 2014.
The dividends in arrears to be reported on the December 31, 2014 = 1058000*5%*3 = $158700
The cumulative dividend should be reported as a liability.
b. Journal Entry
c. Prefred stock shoud be reported in the equity section as under:
Preference share capital (4900*100) 490000 Equity Share capital (4900*7*9) 308700 Profit on conversion / Capital Reserve 181300Related Questions
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