When Crossett Corporation was organized in January 2016, it immediately issued 5
ID: 2592790 • Letter: W
Question
When Crossett Corporation was organized in January 2016, it immediately issued 5,400 shares of $50 par, 7 percent, cumulative preferred stock and 11,000 shares of $11 par common stock. Its earnings history is as follows: 2016, net loss of $12,300; 2017, net income of $55,600; 2018, net income of $113,900. The corporation did not pay a dividend in 2016.
How much is the dividend arrearage as of January 1, 2017?
Assume that the board of directors declares a $53,300 cash dividend at the end of 2017 (remember that the 2016 and 2017 preferred dividends are due). How will the dividend be divided between the preferred and common stockholders?
When Crossett Corporation was organized in January 2016, it immediately issued 5,400 shares of $50 par, 7 percent, cumulative preferred stock and 11,000 shares of $11 par common stock. Its earnings history is as follows: 2016, net loss of $12,300; 2017, net income of $55,600; 2018, net income of $113,900. The corporation did not pay a dividend in 2016.
How much is the dividend arrearage as of January 1, 2017?
Assume that the board of directors declares a $53,300 cash dividend at the end of 2017 (remember that the 2016 and 2017 preferred dividends are due). How will the dividend be divided between the preferred and common stockholders?
Explanation / Answer
a. Dividend arrearage as of January 1, 2017 = [5,400 shares * $50 par * 7 percent]
= $18900
Note:- Cumulative preferred stock dividend gets accumulated for next year,if it is not paid in current year
b. Dividend be divided between the preferred and common stockholders:
Divided to preferred stockholders = $37800
Divided to common stockholders [$53300 - $37800] = $15500
Total cash dividend = $53300
Note:- Dividend arrearage as of January 1, 2017 = $18900
add: preferred dividend of 2017 = $18900
Total cumulative preferred dividend accumulated till 2017 = $37800
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