When Higdon Corporation was organized in January 2014, it immediately issued 10,

Question

When Higdon Corporation was organized in January 2014, it immediately issued 10,000 shares of $50 par, 5 percent, cumulative preferred stock and 15,000 shares of $10 par common stock. The company’s earnings history is as follows: 2014, net loss of $18,000; 2015, net income of $110,000; 2016, net income of $90,000. The corporation did not pay a dividend in 2014.

How much is the dividend arrearage as of January 1, 2015? (Do not round intermediate calculations.)

Assume that the board of directors declares a $65,000 cash dividend at the end of 2015 (remember that the 2014 and 2015 preferred dividends are due). How will the dividend be divided between the preferred and common stockholders? (Do not round intermediate calculations. Amounts to be deducted should be indicated with minus sign.)

When Higdon Corporation was organized in January 2014, it immediately issued 10,000 shares of $50 par, 5 percent, cumulative preferred stock and 15,000 shares of $10 par common stock. The company’s earnings history is as follows: 2014, net loss of $18,000; 2015, net income of $110,000; 2016, net income of $90,000. The corporation did not pay a dividend in 2014.

Distributed to Shareholders Amount Preferred Co mmon Total dividend declared 2014 Arrearage 2015 Preferred dividends Available for common shares Distributed to common stockholders Total

Explanation / Answer

a) Dividend arrearange on january 1,2015 = 10000*50*5% = $25000

b) Dividend distribution :

Distributed to shareholders Amount Preferred Common Total dividend declared 65000 2014 Arrearge 25000 25000 2015 preferred dividend 25000 25000 Available for common shares 15000 Distributed to common stockholders 15000 15000 Total 50000 15000

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