Exercise 230 (Part Level Submision) The stockholders\' equity section of Patrick

Question

Exercise 230 (Part Level Submision) The stockholders' equity section of Patrick Corporation's balance sheet at December 31 is presented here: PATRICK CORPORATION Balance Sheet (partial) Stockholders' equity Paid-in capital Preferred stock, cumulative, 10,000 shares authorized, 6,000 shares issued and outstanding $600,000 Common stock, no par, 750,000 shares authorized, 600,000 shares issued 6,000,000 Total paid-in capital 6,600,000 Retained earnings 1,358,000 Total paid-in capital and retained earniings 7,958,000 Less: Treasury stock (4,000 common shares) (32,000 ) Total stockholders' equity $7,926,000 From a review of the stockholders' equity section, answer the following questions.

If the annual dividend on preferred stock is $30,000, what is the dividend rate on preferred stock? Dividend rate on preferred stock %

Explanation / Answer

Dividend Rate on preferred stock is simply the preferred dividends amount expressed as a % of total preferred stock outstanding

Preferred Stock Dividend Rate = 30000 / 600000 = 5%

The preferred dividend rate does not have anything to do with the common stock , retained earnings or treasury stock.

However preferred dividends would reduce the retained earnings balance by the dividend amount

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