Academic Integrity: tutoring, explanations, and feedback — we don’t complete graded work or submit on a student’s behalf.

10. Smith Company has had 10,000 shares of 8%, $100 par-value preferred stock, a

ID: 461980 • Letter: 1

Question

   10.   Smith Company has had 10,000 shares of 8%, $100 par-value preferred stock, and 15,000 shares of $10 par-value common stock outstanding for the last two years. During the most recent year, dividends paid totaled $100,000; in the prior year, dividends paid totaled $60,000.

Required: Compute the amount of dividends that must have been paid to preferred stockholders and common stockholders in each of the years, given the following independent assumptions:

a.

Preferred stock is nonparticipating and noncumulative.

b.

Preferred stock is nonparticipating and cumulative.

a.

Preferred stock is nonparticipating and noncumulative.

b.

Preferred stock is nonparticipating and cumulative.

Explanation / Answer

a.

Preferred

  Stock  

Common

  Stock  

Year 1 Dividends, $60,000

Preferred Stock

10,000 ´ $100 ´ 8% = $80,000

$ 60,000

-0-

Year 2 Dividends, $100,000

Preferred Stock

10,000 ´ $100 ´ 8% = $80,000

$ 80,000

$20,000

b.

Year 1 Dividends, $60,000

Preferred Stock

10,000 ´ $100 ´ 8% = $80,000

$ 60,000

-0-

Year 2 Dividends, $100,000

Preferred Stock

Carryover from Year 1

$ 20,000

10,000 ´ $100 ´ 8% = $80,000

  80,000

-0-

$100,000

Preferred

  Stock  

Common

  Stock  

Year 1 Dividends, $60,000

Preferred Stock

10,000 ´ $100 ´ 8% = $80,000

$ 60,000

-0-

Year 2 Dividends, $100,000

Preferred Stock

10,000 ´ $100 ´ 8% = $80,000

$ 80,000

$20,000