PLEASE EXPLAIN THE NUMBERS (b A company was organized in January 2012 and has 5,

Question

PLEASE EXPLAIN THE NUMBERS

(b A company was organized in January 2012 and has 5,000 shares of $100 par value, 5%, nonparticipating preferred stock outstanding and 40,000 shares of S10 par value common stock outstanding. It has declared and paid cash dividends each year as shown below. Calculate the total dividends distributed to each class of stockholder under each of the assumptions given. 3 Assuming Preferred Stock Is Not Cumulative Assuming Preferred Stock Is Cumulative Cash Dividends Declared and Preferred Common Preferred Common Dividend Year 2012 2013 2014 2015 2016 Paid Dividend Divi dendDividend S32,000 $38,000 $18,000 22,000

Explanation / Answer

1. On Jan 4:-

Debit Building a/c 150000

Credit Preferred stock 125000 (5000 * 25)

Credit Discount om issue of shares 25000

On Feb 8:-

Debit Cash 300000

Credit Commo stock 300000

On Mar 9:-

Debit Cash 150000

Credit Preferred stock 150000

2. A. Mar 25:-

Debit Retained earnings 40000

Credit Dividend payable 40000

On April 20:-

Debit Dividend payable 40000

Credit Cash 40000

On Dec 31:-

Debit P & L a/c 52000

Credit Retained earnings 52000

B. Calculation of Retained earnings on Dec31:-

Opening balance on Jan 1 75000

Less:- Dividends paid 40000

Add:- Transfer from P&L a/c 52000

Closing balnace on Dec 31 87000

3. Calculation of total dividends Distributed to each class:-

Assuming Preferred stock is non cumulative Assuming Preferred stock is non cumulative

Year Dividends Preferred Common Preferred Common

2012 $20000 22000 0 22000 0

2013 $32000 25000 7000 47000 7000

2014 $38000 25000 13000 72000 13000

2015 $18000 18000 0 90000 0

2016 $22000 22000 0 112000 0

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