At December 31, 2014, Black Company has the following: Common Stock, $10 par, 10
ID: 2744778 • Letter: A
Question
At December 31, 2014, Black Company has the following:
Common Stock, $10 par, 10,000 shares authorized, 9,000 issued, 8,000 outstanding
Preferred Stock, $100 par, 8%, cumulative, 1,000 shares authorized, issued, and outstanding
The company did not pay any dividend during 2013 or 2012.
Required:
Compute the amount of dividend to be received by the common and preferred stockholders in 2014 if the company declared a dividend of (a) $16,000, (b) $24,000, and (c) $60,000. If an amount is zero, enter 0.
Stockholders
16,000
24000
60000
Preferred
Common
Stockholders
16,000
24000
60000
Preferred
Common
Explanation / Answer
Solution:
In case of Preference Shares having cumulative features. This featue gives preference shareholders a preference to receive dividend along with acculumalted dividends from past years before equity shareholders.
since company did not pay any dividend during 2012 and 2013 --- for both the years dividend on preferred stock would be accumulated and paid when company pay dividend:
We need to calculate first prefered stock dividend for year
2012 = Outsdanding share x par vale x dividend percentage of preferred stock = 1000*100*8% = $8,000
2013 = 1000*100*8% = $8,000
2014 = 1000*100*8% = $8,000
Cumulative Preferred Dividend Outstanding at Dec 31, 2014 = $24,000
Here is the amount of dividend to be received by the common and preferred stockholders
Stockholders
16,000
24000
60000
Preferred
$16,000
$24,000
$24,000
Common
0
0
60,000 - $24000 = 36,000
Stockholders
16,000
24000
60000
Preferred
$16,000
$24,000
$24,000
Common
0
0
60,000 - $24000 = 36,000
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