1. A company had stock outstanding as follows during each of its first three yea
ID: 2378883 • Letter: 1
Question
1. A company had stock outstanding as follows during each of its first three years of operations: 2,500 shares of $10, $100 par, cumulative preferred stock and 50,000 shares of $10 par common stock. The amounts distributed as dividends are presented below. Determine the total and per share dividends for each class of stock for each year by completing the schedule.Preferred Common
Year Dividends Total Per Share Total Per Share
1 $10,000 _________ _________ _________ _________
2 25,000 _________ _________ _________ _________
3 60,000 _________ _________ _________ _________
2. On April 1, 10,000 shares of $5 par common stock were issued at $22, and on April 7, 5,000 shares of $50 par preferred stock were issued at $104. Journalize the entries for April 1 and 7.
Explanation / Answer
Dividends on preferred shares are paid before dividends on common shares. If the preferred stock is cumulative, any dividends in arrears must be paid before common shareholders receive dividends. 2,500 x $10 = $25,000 dividends owed to preferred shareholders each year. Year 1 $10,000 Total dividends Preferred: $10,000 Dividends Received 10,000 / 2,500 shares = $4 per share. Dividends in arrears = 25,000 - 10,000 = $15,000 Common: 0 Dividends Received Year 2 $25,000 Total dividends Preferred: $25,000 Dividends Received 25,000 / 2,500 shares = $10 per share. There are still $15,000 dividends in arrears. Common: 0 Dividends Received Year 3 $60,000 Total dividends Preferred: 25,000 + 15,000 dividends in arrears = $40,000 dividends received 40,000 / 2,500 shares = $16 per share There are now no dividends in arrears. Common: $20,000 dividends received 20,000 / 50,000 shares = $0.40 per share
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