The Surf\'s Up issues 1,000 shares of 6%, $100 par value preferred stock at the

Question

The Surf's Up issues 1,000 shares of 6%, $100 par value preferred stock at the beginning of 2014. All remaining shares are common stock. The company was not able to pay dividends in 2014, but plans to pay dividends of $18,000 in 2015. Assuming the preferred stock is noncumulative, how much of the $18,000 divided will be paid to preferred stockholders and how much will be paid to common stockholders in 2015? California Adventures issues 5,000 shares of 8%. $100 par value preferred stock at the beginning of 2014. All remaining shares are common stock. The company was not able to pay dividends in 2014, but plans to pay dividends of $100,000 in 2015. Assuming the preferred stock is cumulative, how much of the $100,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2015? Net income for 2015 was $250,000 and the beginning retained earnings was $120,000. How much is the ending Retained earnings?

Explanation / Answer

Since the the preferred stock is non-cumulative thus only current year preferred dividend will be paid.

Preferred dividend = 1,000 x 100 x 6% = $6,000

Dividend paid to common stockholders = 18,000 - 6,000 = $12,000

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