3.00 points Exercise 10-4 Determine the amount of preferred stock dividends 1LO1

Question

3.00 points Exercise 10-4 Determine the amount of preferred stock dividends 1LO10-3) has 1.400 shares of 6%$100 par value preferred stock the company issued at the beginning of 2017, All remaining shares are Nathan's Athletic Apparel common stock. The company was not able to pay dividends in 2017, but plans to pay dividends of $19,000 in 2018. Required 1. & 2. Assuming the preferred stock is cu much will be paid to common stockholders in 2018 mulatv and onoumuliative, how much of the $19.000 dividend ill be pald to preferred stockholders and how Cumulative Non Cumulat Preferred dividends for 2018 Preferred dividends in arrears for 2017 Remaning dividends to common stockholders Total dividends

Explanation / Answer

Solution: Cumulative Non Cumulative Preferred dividends for 2018 8,400 8,400 Preferred dividends in arrears for 2017 8,400 Remaining dividends to common stockholders 2,200 10,600 Total Dividends $19,000 $19,000 Working Notes: Cumulative Non Cumulative Preferred dividends for 2018 8,400 8,400 a Preferred dividends in arrears for 2017 8,400 b Remaining dividends to common stockholders 2,200 10,600 c=d-a-b Total Dividends $19,000 $19,000 d Preferred Dividend = 6% x $100 x 1,400 = 8,400 Since the preferred stock is noncumulative if Preferred dividend is not paid in particular year it cannot be carried forward as arrears. In case of cumulative preferred stock, arrear dividends is carried forward and paid in future years. Please feel free to ask if anything about above solution in comment section of the question.

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