Helifex , Inc. began operations in 2010 and has the following Capital Stock: Hel

Question

Helifex , Inc. began operations in 2010 and has the following Capital Stock: Helifex , Inc. Capital Stock: Preferred Stock: # Shares Stated Dividend Rate Par value Authorized shares of cumulative, non-participatory preferred stock        80,000 6% $10 Issued shares of prefered stock        60,000 Outstanding shares of preferred stock        30,000 Common Stock: # Shares Authorized shares of $1 par value common stock        50,000 Issued shares of common stock        40,000 Outstanding shares of common stock        10,000     Required: a) Compute the amount of Preferred Stock dividends. b) On January 1, 2017, the Board of Directors declared dividends of $   35,000 Prepare the journal entry for the declaration of the dividends. c) On March 31, 2017, the dividends are disbursed to stockholders of record.   Determine the allocation of dividends to Preferred and Common Stockholders. d) The Board of directors did not declare dividends during 2018. Determine the allocation of dividends to Preferred and Common Stockholders. Total dividends for Preferred Stockholders Total dividends for Common Stockholders e) On June 8, 2019 the Board of Directors declared dividends of $110,000 Determine the allocation of dividends to Preferred and Common Stockholders.     f) The following year, on November 30, 2020, the board declared dividends of $100,000 Determine the allocation of dividends to Preferred and Common stockholders.     g) Explain the advantages and disadvantages of investing in preferred stock. Helifex , Inc. began operations in 2010 and has the following Capital Stock: Helifex , Inc. Capital Stock: Preferred Stock: # Shares Stated Dividend Rate Par value Authorized shares of cumulative, non-participatory preferred stock        80,000 6% $10 Issued shares of prefered stock        60,000 Outstanding shares of preferred stock        30,000 Common Stock: # Shares Authorized shares of $1 par value common stock        50,000 Issued shares of common stock        40,000 Outstanding shares of common stock        10,000     Required: a) Compute the amount of Preferred Stock dividends. b) On January 1, 2017, the Board of Directors declared dividends of $   35,000 Prepare the journal entry for the declaration of the dividends. c) On March 31, 2017, the dividends are disbursed to stockholders of record.   Determine the allocation of dividends to Preferred and Common Stockholders. d) The Board of directors did not declare dividends during 2018. Determine the allocation of dividends to Preferred and Common Stockholders. Total dividends for Preferred Stockholders Total dividends for Common Stockholders e) On June 8, 2019 the Board of Directors declared dividends of $110,000 Determine the allocation of dividends to Preferred and Common Stockholders.     f) The following year, on November 30, 2020, the board declared dividends of $100,000 Determine the allocation of dividends to Preferred and Common stockholders.     g) Explain the advantages and disadvantages of investing in preferred stock.

Explanation / Answer

Answer a. Preferred Stock Dividend = 30,000 Shares X $10 X 6% = $18,000 Answer b. Journal Entry Date Particulars Dr. Amt. Cr. Amt. 1-Jan-17 Retained Earnings                                     Dr.          35,000 To Dividend Payable - Preferred          18,000 To Dividend Payable - Common          17,000 (Record the declaration of Dividends) Answer c. Dividend Payable          35,000 Preferred Dividend          18,000 Common Stock - Dividend          17,000 Answer d. Dividend declared                   -   Preferred Dividend                   -   Common Stock - Dividend                   -   Answer e Dividend Delclared       110,000 Preferred Dividend - $18,000 (2018) + $18,000 (2019)          36,000 Common Stock - Dividend          74,000 Answer f. Dividend Delclared       100,000 Preferred Dividend          18,000 Common Stock - Dividend          82,000 Answer g. Advantages of Preference Shares: 1. Preferrence shares have a fixed rate of dividend and must be paid before any dividend is paid to Common Stockholders. 2. In case of liquidation or bankruptcy, preference shareholders must be paid before any amount paid to common stockholders. 3. In case of convertible preference shares, the preference shares can be converted into Common Stock, in the case of stock prices are increasing. Disadvantages of Preference Shares: 1. Preference shareholders do not have any voting rights i.e they don not participate in the affairs of the company.

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