The outstanding capital stock of Teal Corporation consists of 1,800 shares of $1

Question

The outstanding capital stock of Teal Corporation consists of 1,800 shares of $100 par value, 5% preferred, and 5,000 shares of $50 par value common Assuming that the company has retained earnings of $80,500, 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. (Round answers to O decimal places, e.g. $38,487.) Preferred Common (b) The preferred stock is cumulative and nonparticipating. (Round answers to O decimal places, e.g. $38,487.) Preferred Common (c) The preferred stock is cumulative and participating. (Round the rate of participation to 4 decimal places, e.g.1.4278%. Round answers to O decimal places, e.g. $38,487.) Preferred Common

Explanation / Answer

(a) Preferred dividend=1800*100*5%=9000 Common dividend=80500-9000=71500 (b) Preferred dividend: For previous 2 years (1800*100*5%*2) 18000 For current year (1800*100*5%) 9000 27000 Common dividend=80500-27000=53500 © Preferred dividend: For previous 2 years (1800*100*5%*2) 18000 For current year (1800*100*5%) 9000 Common dividend=5000*50*8%=20000 Remaining retained earnings=80500-18000-9000-20000=33500 Participating dividend=Remaining payout*(IndividualStock $/Total stock $) Preferred [33500*(180000/430000)] 14023 Common [33500*(25000/430000] 19477 33500 Summary: Preferred 18000+9000+14023 41023 Common 20000+19477 39477 80500

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