Matt Schmidt Company’s ledger shows the following balances on December 31, 2014.
ID: 2427569 • Letter: M
Question
Matt Schmidt Company’s ledger shows the following balances on December 31, 2014. 5% Preferred Stock—$10 par value, outstanding 20,180 shares $ 201,800 Common Stock—$100 par value, outstanding 30,650 shares 3,065,000 Retained Earnings 633,600 Assuming that the directors decide to declare total dividends in the amount of $370,100, determine how much each class of stock should receive under each of the conditions stated below. One year‘s dividends are in arrears on the preferred stock. (a) The preferred stock is cumulative and fully participating. (b) The preferred stock is noncumulative and nonparticipating. (c) The preferred stock is noncumulative and is participating in distributions in excess of a 6% dividend rate on the common stock.
Explanation / Answer
a)Calculation of Dividend:
Annual Dividend of Preferred Stock = 201,800 x 5% = 10,090
Last Year dividend is in arrear so this Year total Dividend payable to Prefer Stockholder: 10,090 x 2 = 20,180
Remaining Dividend = 370,100 – 20,180 = 349,920
Total numbers of shares = 30,150 (Equity) + 20,180 (Prefer) = 50,330 Per Share dividend = 349,920 / 50,330 = 6.95
b)Calculation of Dividend:
Annual Dividend of Preferred Stock = 201,800 x 5% = 10,090
Remaining Dividend = 370,100 – 10,090 = 360,010
Total numbers of shares =20,180 (Prefer)
Per Share dividend(Common) = 360,010 / 30150 = 11.94
c)
Calculation of Dividend:
Annual Dividend of Preferred Stock = 201,800 x 5% = 10,090
Remaining Dividend = 370,100 – 10,090 = 360,010
In this 6% dividend to common stock
=6%*3065000=$183,900
remaining=360,010-183,900=$176,110
Participation of Prefer Stockholders:176,110 / 50,330 = 3.5 Per Share
Equity = 3.5 x 30,150 = 105,525
prefered== 3.5 x 20,180 = 70,630
Total Dividend: Prefer Share = 10,090 + 70,630 = 80,720
Common Stock = 183,900 + 105,520 = 289,420.