Martinez Company\'s ledger shows the following balances on December 31, 2012. As
ID: 2379560 • Letter: M
Question
Martinez Company's ledger shows the following balances on December 31, 2012.
Assuming that the directors decide to declare total dividends in the amount of $364,952, determine how much each class of stock should receive under each of the conditions stated below. One year's dividends are in arrears on the preferred stock.
Preferred
Common
Preferred
Common
Preferred
Common
5% Preferred stock-$10 par value, outstanding 27,440 shares $274,400 Common stock-$100 par value, outstanding 41,160 shares 4,116,000 Retained earnings 864,360 Martinez Company's ledger shows the following balances on December 31, 2012. Assuming that the directors decide to declare total dividends in the amount of $364,952, determine how much each class of stock should receive under each of the conditions stated below. One year's dividends are in arrears on the preferred stock. (a) The preferred stock is cumulative and fully participating.Explanation / Answer
Martinez Company's ledger shows the following balances on December 31, 2012.
Preferred
Shareholders
Dividends in arrears (27,440*10*5%*1) $13720
Regular dividend 27,440*10* 5% $13720
Total dividend for Preferred = 13720*2 = 27440
Common Stock
Dividend for Common stock at 5% = 4,116,000*5%=$205800
Remaining amount = 364,952- 27440-205800=131712
Remaining amount will be shared between Preferred and common pn pro rata basis
Participating dividend to Preferred stock = 131712*27440/(27440+41160) =$52684.80
Participating dividend to common stock =131712*41160/(27440+41160)=$79027.2
Total dividend to Preferred stock = 27440+52684.80=$80124.8
Total dividend to Common stock = 205800 + 79027.2=$284827.2
Preferred
Shareholders
Dividends in arrears 0
Regular dividend 27,440*10* 5% $13720
Total dividend for Preferred = 13720 = 13720
Common Stock
Dividend for Common stock =364,952 -13720=$351,232
Answer
dividend for Preferred = $13720
Dividend for Common stock =$351,232
c)The preferred stock is noncumulative and is participating in distributions in excess of a 7% dividend rate on the common stock.
Preferred
Shareholders
Dividends in arrears 0
Regular dividend 27,440*10* 5% $13720
Total dividend for Preferred = 13720 = 13720
Common Stock
Dividend for Common stock at 7% = 4,116,000*7%=$288120
Remaining amount = 364,952- 13720 -288120=63112
Remaining amount will be shared between Preferred and common pn pro rata basis
Participating dividend to Preferred stock = 63112*27440/(27440+41160) =$25244.8
Participating dividend to common stock = 63112*41160/(27440+41160)=$37867.2
Total dividend to Preferred stock =13720+25244.8=$38965
Total dividend to Common stock = 288120 + 37867.2=$325987
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