Question

The outstanding capital stock of Novak Corporation consists of 1,800 shares of $100 par value, 7% preferred, and 5,100 shares of $50 par value common. Assuming that the company has retained earnings of $80,000, all of which is to be paid out in dividends, and that preferred dividends were not paid during the 2 years preceding the current year, state how much each class of stock should receive under each of the following conditions.

(a) The preferred stock is noncumulative and nonparticipating (Round answers to decimal places, es $38,487.) Preferred Common
(b) The preferred stock is cumulative and nonparticipating. (Round answers to decimal places, es $38,487) Preferred Common decimal places The preferred stock is cumulative and participating (Round the rate of participation to 4 decimal places, s 1.4278X Round answers to $38.487.)

Answer 1

To calculate the amount each class of stock should receive under different conditions, we need to consider whether the preferred stock is noncumulative or cumulative, and participating or nonparticipating.

Step-by-step explanation:

To calculate the amount each class of stock should receive, we need to take into account the preferred stock and the common stock.

(a) If the preferred stock is noncumulative and nonparticipating, the common stock receives the entire amount of retained earnings. In this case, the preferred stock will receive no dividends.

(b) If the preferred stock is cumulative and nonparticipating, the preferred stock will receive the full amount of dividends for the current year and any unpaid dividends from the previous two years. The remaining amount will be distributed to the common stock.

(c) If the preferred stock is cumulative and participating, the preferred stock will receive the full amount of dividends for the current year and any unpaid dividends from the previous two years, plus an additional amount based on the rate of participation. The remaining amount will be distributed to the common stock.

Answer 2

Preferred Common

Non cumulative and non Participative 12,600 67,400

Cumulative and non participative 37800 42200

Cumulative and participative 47876 32124

Current Stock Out Standing

Common stock at the rate 50 5100 shares 255000

Preferred stock 7% at the rate 100 1800 shares 180000

Cumulative the annual dividend on the preferred stock

Preferred stock dividend (180000 x 7%) 12600

Dividend Arrears to preferred stock (12600 x 2) 25200

Non cumulative and non participative

Preferred Common Total

Current year 12600 12600

Arrears 0 0

Common stock 67400 67400

Total dividend 12600 67400 80000

Cumulative and non participative

Preferred Common Total

Current year 12600 12600

Arrears 25200 25200

Common stock 42200 42200

Total dividend 37800 42200 80000

Cumulative and participative

Preferred Common Total

Current year 12600 12600

Arrears 25200 25200

Common stock (255000 x 7%) 17850 17850

Balance dividend pro data 10076 14274 24350

Total dividend 47876 32124 80000

Working notes :

Amount for the participation = 80000-(12600+25200+17850) = 24350

Rate of participation =
`$(24350)/((255000+180000)) $` = 5.5977%

Participating dividend:

Preferred stock = 18000 x 5.5977% = 10076

Common stock = 255000 x 5.5977% = 14274

Total participating dividend = 24350