10. Smith Company has had 10,000 shares of 8%, $100 par-value preferred stock, a
ID: 461980 • Letter: 1
Question
10. Smith Company has had 10,000 shares of 8%, $100 par-value preferred stock, and 15,000 shares of $10 par-value common stock outstanding for the last two years. During the most recent year, dividends paid totaled $100,000; in the prior year, dividends paid totaled $60,000.
Required: Compute the amount of dividends that must have been paid to preferred stockholders and common stockholders in each of the years, given the following independent assumptions:
a.
Preferred stock is nonparticipating and noncumulative.
b.
Preferred stock is nonparticipating and cumulative.
a.
Preferred stock is nonparticipating and noncumulative.
b.
Preferred stock is nonparticipating and cumulative.
Explanation / Answer
a.
Preferred
Stock
Common
Stock
Year 1 Dividends, $60,000
Preferred Stock
10,000 ´ $100 ´ 8% = $80,000
$ 60,000
-0-
Year 2 Dividends, $100,000
Preferred Stock
10,000 ´ $100 ´ 8% = $80,000
$ 80,000
$20,000
b.
Year 1 Dividends, $60,000
Preferred Stock
10,000 ´ $100 ´ 8% = $80,000
$ 60,000
-0-
Year 2 Dividends, $100,000
Preferred Stock
Carryover from Year 1
$ 20,000
10,000 ´ $100 ´ 8% = $80,000
80,000
-0-
$100,000
Preferred
Stock
Common
Stock
Year 1 Dividends, $60,000
Preferred Stock
10,000 ´ $100 ´ 8% = $80,000
$ 60,000
-0-
Year 2 Dividends, $100,000
Preferred Stock
10,000 ´ $100 ´ 8% = $80,000
$ 80,000
$20,000
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