A corporation was formed January 1, Year 1 when the firm issued 10,000 shares of

Question

A corporation was formed January 1, Year 1 when the firm issued 10,000 shares of its $25 par value common stock for $350,000. On the same date the firm issued 1,000 shares of its 10% preferred shares for $100,000. The preferred shares have a par value of $100 per share. The preferred shares are cumulative and participating. The coporation had Net Income in Year 1 of $250,000. The firm declared and paid no dividends of any sort in Year 1. In Year 2, the firm had Net Income of $300,000. On December 31, Year 2, the firm declared and paid a $100,000 cash dividend. On January 1, Year 3, the firm declared and distributed a 15% common stock dividend when the fair market value was $50 per share. In Year 3, the firm’s Net Income was $500,000. On January 1, Year 4, the firm declared and distributed a 50% common stock dividend when the fair market value per share was $60. On December 31, Year 4, the firm declared and paid a cash dividend of $200,000. The firm's Net Income for Year 4 was $400,000.

How much money would the common shareholders receive from the cash dividend declared and paid on December 31, Year 2?

Considering both the common stock dividend in Year 3 and the firm's Net Income for Year 3, what is the net change in the firm's Retained Earnings account during Year 3?

How much cash would be given to the preferred shareholders out of the cash dividend declared and paid on December 31, Year 4?

(for reference, the textbook answers are 1. $64286 2. $425,000 and 3. $45745... I just need help with the work)

Explanation / Answer

How much money would the common shareholders receive from the cash dividend declared and paid on December 31, Year 2? Particulars Preferred Stock Cmmon Stock Total Cash Dividend Declared 1,00,000 Preferred Stock @10%*100000*2 Years 20000 Estimated remaing amount after giving to Equity shareholders 25000 10% of 250000 for that Year =25000 Remaining Amount 55000 Calculation of Preferred stock Dividend 1 Preferred Stock @10%*100000*2 Years 20000 2 Estimated remaing amount after giving to Equity shareholders 25000 10% of 250000 for that Year =25000 (have Deduct to estimated) 3 Remaining Amount 55000 4 Total of Capital of Common And Preferred stock 250000+100000 350000 5 prefered stock 100000 6 % of prefered stock in total stock of 350000 28.57% 7 Share of Prefered Stock on remaining earnings 55000*28.57% 15714 8 Normal Dividend to preferred stock 20000 TotAL Prefered Dividend 35714 Remaing Dividend to common stock 100000-35714 64286 Considering both the common stock dividend in Year 3 and the firm's Net Income for Year 3, what is the net change in the firm's Retained Earnings account during Year 3? 1 15% common stock is distributed when market value is $50 per share then total value of common stock is 10000*$50 $500000 2 15% comon stock $75000 3 Net Income $500000 4 Retained Earnings(3-2) $475000 How much cash would be given to the preferred shareholders out of the cash dividend declared and paid on December 31, Year 4? 1 Existing Common Stock 11500+5750=17250*25 431250 2 existing 10% Prefered Stock 100000 3 Total (2+1) 531250 4 % of prefered stock on total stock (2/3) 18.81% 5 Dividend Declared 200000 6 2 Years prefered Dividend 20000 7 Remaing amount 180000 8 Assumed Share of Profit of common stock (1*10%) 43125 9 Common Profit 136875 8 Preferred stock Profit (9*4) 25746 9 total cash to Prefered Dividend (6+8) 45746

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