Wiggins Corporation has 10,000,000 shares of $1 par value common stock outstandi

Question

Wiggins Corporation has 10,000,000 shares of $1 par value common stock outstanding. This stock was originally issued at $7 per share. The company also has 1,000,000 shares of $50, 4%, cumulative preferred stock outstanding. The preferred stock was originally issued at par. During 20X5, the company experienced a significant business interruption and was unable to pay any dividends. Prior to 20X5, the preferred shareholders had always received the expected dividend. During 20X6, the company returned to profitability, and paid $7,000,000 in dividends. (a) How much is the company's legal capital, additional paid-in capital, and total paid-in capital? (b) What accounting/disclosure is needed relating to the dividends in arrears on the preferred stock as of the end of 20X5 (i.e., should a liability be established)? (c) How would the 20X6 dividends be divided between common and preferred stock? Wiggins Corporation has 10,000,000 shares of $1 par value common stock outstanding. This stock was originally issued at $7 per share. The company also has 1,000,000 shares of $50, 4%, cumulative preferred stock outstanding. The preferred stock was originally issued at par. During 20X5, the company experienced a significant business interruption and was unable to pay any dividends. Prior to 20X5, the preferred shareholders had always received the expected dividend. During 20X6, the company returned to profitability, and paid $7,000,000 in dividends. (a) How much is the company's legal capital, additional paid-in capital, and total paid-in capital? (b) What accounting/disclosure is needed relating to the dividends in arrears on the preferred stock as of the end of 20X5 (i.e., should a liability be established)? (c) How would the 20X6 dividends be divided between common and preferred stock?

Explanation / Answer

a. Legal capital: Common stock (10000000*1) 10000000 Preferred stock (1000000*50) 50000000 Total 60000000 Additional paid-in-capital Common stock 60000000 [10000000*(7-1)] Total paid-in-capital=Legal capital+Additional paid-in-capital=60000000+60000000=120000000 b. Dividend in arrears should be disclosed in the notes to balance sheet.No need to establish a liability in the balance sheet. c. Dividend 7000000 Less:Paid to preferred stock Arrears (1000000*50*4%) 2000000 Current year (1000000*50*4%) 2000000 4000000 Balance to common stock 3000000

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