The notes that accompany the financial statements indicate that Haaaard has not

Question

The notes that accompany the financial statements indicate that Haaaard has not paid dividends for the three years prior to 2015. On July 1, 2015, Haaaard declares a dividend of $150,000 to be paid to preferred an common shareholders on August 1. Determine the amounts of the dividend to be allocated to preferred and common shareholders, assuming that the preferred stock is non-cumulative. Record the appropriate journal entries to record the dividends calculated in 1. Determine the amounts of the dividend to be allocated to preferred and common shareholders, assuming instead that the preferred shares arc cumulative.

Explanation / Answer

1)

Dividend per share of preferred dividend = $8

As the preferred shares are non cumulative, when dividend is declared, the preferred shareholders will receive dividend for the current year. However, the preferred dividend will be paid first and the rest of the total amount of dividend will be distributed to the common stock holders.

2)

3)

When preferred shares are cumulative, they will be paid dividend not only for the current year but also for the previous years in which no dividend was paid by the company. Here the company has not declared dividend for the past three years. So preferred shareholders will be first paid for 4 years of dividend (3 prior year + current year). Thereafter, the rest of the dividend declared will be distributed by the company to common stockholders.

Total amount of dividend declared $ 1,50,000 Less: dividend to be paid to the preferred shareholders ($ 8 x 2000) $     16,000 Dividend to be distributed to common stockholders $ 1,34,000

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