Dividends on preferred stock. The stockholders\' equity section of Lemay Corpora
ID: 2418905 • Letter: D
Question
Dividends on preferred stock.
The stockholders' equity section of Lemay Corporation shows the following on December 31, 2015: Preferred stock—5%, $100 par, 5,000 shares outstanding $ 500,000 Common stock—$10 par, 60,000 shares outstanding 600,000 Paid-in capital in excess of par 200,000 Retained earnings 113,000 Total stockholders' equity $1,413,000.
Instructions Assuming that all of the company's retained earnings are to be paid out in dividends on 12/31/15 and that preferred dividends were last paid on 12/31/13, show how much the preferred and common stockholders should receive if the preferred stock is cumulative and fully participating.
*Please post solution, this is a study question for a test, so I need to understand the process. Thank you!
Explanation / Answer
Preferred dividend = 500,000 *.05 = 25000
pREFerred stock common stock Lat year dividend /dividend in arrear = 25000 current year dividend 25000 30000 [600,000*.05equivalent to preferred rate]] Remaining balance of dividend available [113000-25000-25000-30000] = 33000 15000 [33000*500000/1100000] 18000 [33000*600,000/1100,000] Total dividend paid 65000 48000