Rensing, Inc., has $800,000 of 5% preferred stock and $1,200,000 of common stock
ID: 2465577 • Letter: R
Question
Rensing, Inc., has $800,000 of 5% preferred stock and $1,200,000 of common stock outstanding, each having a par value of $10 per share. No dividends have been paid or declared during 2013 and 2014. As of December 31, 2015, it is desired to distribute $340,000 in dividends.
Instructions: Determine how much the preferred and common stockholders will receive under each of the following assumptions:
A) The preferred is noncumulative and nonparticipating.
B) The preferred is cumulative and nonparticipating.
C) The preferred is cumulative and fully participating.
D) The preferred is cumulative and participating to 9% total
Explanation / Answer
A. The preferred is noncumulative and nonparticipating.
Total dividend for current year = $340000
Less dividend for preferred = 40000 ( 800000 × 5%)
Balance for common stock = $300000
B.The preferred is cumulative and nonparticipating.
total dividend paid =. $340000
Less preferred dividend = $ 120000
($ 800000 × 5% for 2 years+
currrent year divided of $40000 )
Balance for common stock = $220000
C) The preferred is cumulative and fully participating.
Particular preferred common total
Dividend of2 years $ 80000. - $ 80000
Current year dividend. $ 40000 60000 $100000
Participate dividend (Balance) $64000. 96000 $160000
Total. $184000 156000 $340000. Current year dividend and participating dividend are:
Remaing dividend = 340000 - 80000 =260000
Devided in the ratio of preferred and equity
Preferred 260000 × 800000/ 2000000 = $104000
Equity = 260000 - 104000 = $156000
In CAse of preferred dividend ;
Participateing dividend = remaining dividend - current year divided @5%
= $104000 -40000 = $64000
for common stock $60000 is balance
D.
Remaining to common 80000 - 80000
Total $152000. $188000. $340000
Preferred common Total Dividend for 2 years $80000 - $80000 Current year dividend 40000 60000 100000 Participating dividend @4% 32000 48000 80000