Matt Schmidt Company’s ledger shows the following balances on December 31, 2014.
ID: 2458502 • Letter: M
Question
Matt Schmidt Company’s ledger shows the following balances on December 31, 2014. 5% Preferred Stock—$10 par value, outstanding 20,960 shares $ 209,600 Common Stock—$100 par value, outstanding 30,300 shares 3,030,000 Retained Earnings 638,400 Assuming that the directors decide to declare total dividends in the amount of $366,600, 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. (Round the rate of participation to 4 decimal places, e.g.1.4278%. Round answers to 0 decimal places, e.g. $38,487.) Preferred Common
(b) The preferred stock is noncumulative and nonparticipating. (Round answers to 0 decimal places, e.g. $38,487.) Preferred Common
(c) The preferred stock is noncumulative and is participating in distributions in excess of a 6% dividend rate on the common stock. (Round the rate of participation to 4 decimal places, e.g.1.4278%. Round answers to 0 decimal places, e.g. $38,487.) Preferred Common
Explanation / Answer
(a) The preferred stock is cumulative and fully participating.
Annual Dividend of preferred stock = 5%*209600
Annual Dividend of preferred stock = 10480
Last year dividend in arrear so this year
Total dividend payable to preferred stockholder = 10480*2
Total dividend payable to preferred stockholder = 20960
Remaining Dividend = 366600 - 20960
Remaining Dividend = 345640
Total Number of share = 20960 + 30300 = 51260
Percentage of participation of common stock = 30300/51260 = 59.1104%
Percentage of participation of common stock = 20960/51260 = 40.8896%
Preferred Stock Dividend = 20960 + 40.8896%*345640
Preferred Stock Dividend = $ 162,291
Common Stock Dividend = 59.1104%*345640
Common Stock Dividend = 204,309
Answer
Preferred Stock Dividend = $ 162291
Common Stock Dividend = 204309
(b) The preferred stock is noncumulative and nonparticipating.
Annual Dividend of preferred stock = 5%*209600
Annual Dividend of preferred stock = 10480
Since it is noncumulative and nonparticipating
Preferred Stock Dividend = $ 10480
Common Stock Dividend = 366600-10480
Common Stock Dividend = 356,120
Answer
Preferred Stock Dividend = $ 10480
Common Stock Dividend = 356120
(c) The preferred stock is noncumulative and is participating in distributions in excess of a 6% dividend rate on the common stock.
Annual Dividend of preferred stock = 5%*209600
Annual Dividend of preferred stock = 10480
Since it is noncumulative
Total dividend payable to preferred stockholder before participation = 10480
Total Dividend payable to common stockholder before participation = 3030000*6% = 181800
Remaining Dividend = 366600 - 10480-181800
Remaining Dividend = 174320
Total Number of share = 20960 + 30300 = 51260
Percentage of participation of common stock = 30300/51260 = 59.1104%
Percentage of participation of common stock = 20960/51260 = 40.8896%
Preferred Stock Dividend = 10480 + 40.8896%*174320
Preferred Stock Dividend = $ 81,759
Common Stock Dividend = 181800+ 59.1104%*174320
Common Stock Dividend = 284,841
Answer
Preferred Stock Dividend = $ 81,759
Common Stock Dividend = 284,841