AE15-21 (Preferred Dividends) The outstanding capital stock of Pennington Corpor

Question

AE15-21


(Preferred Dividends)

The outstanding capital stock of Pennington Corporation consists of 2,200 shares of $109 par value, 6% preferred, and 5,300 shares of $60 par value common.

Assuming that the company has retained earnings of $86,000, all of which is to be paid out in dividends, and that preferred dividends were not paid during the 2 years preceding the current year, state how much each class of stock should receive under each of the following conditions.

(a) The preferred stock is noncumulative and nonparticipating.


Preferred
Common

$ $


(b) The preferred stock is cumulative and nonparticipating.


Preferred
Common

$ $


(c) The preferred stock is cumulative and participating. (Round rate of participation to 4 decimal places, e.g. 5.1234. Round final answer to 0 decimal places, e.g. 25,320.)


Preferred
Common

$ $

Explanation / Answer

(a) The preferred stock is noncumulative and nonparticipating.

Preferred stock = 56,00* $60 * 0.06 = $19,080

Preferred Per Share = $19,080/5600 = $3.4071

Common Stock = Retained Earnings - Preferred dividend

= $86,000 - $19,080 = $66,920

Common stock per share = $66,920/2200 = $30.4182

(b) The preferred stock is cumulative and nonparticipating

Preferred stock = Preferred dividend (1st + 2nd +3rd )year

  = 19,080 + 19,080 + 19,080 = $57,240

Preferred Per Share = $57,240/5600 = $10.2214

Common stock = Retained Earnings - Preferred dividend

= $86,000 - 19,080 - 19,080 -19,080 = $28,760

Common stock per share = $28,760/2200 = $13.0727

(c) The preferred stock is cumulative and participating.

Preferred stock = Preferred dividend (1st + 2nd +3rd )year

  = 19,080 + 19,080 + 19,080 = $57,240

Preferred Per Share = $57,240/5600 = $10.2214

Common stock = Retained Earnings - Preferred dividend

= $86,000 - 19,080 - 19,080 -19,080 = $28,760

Common stock per share = $28,760/2200 = $13.0727

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