Question

The outstanding capital stock of Coronado Corporation consists of 1,900 shares of $100 par value, 9% preferred, and 5,400 shares of $50 par value common. Assuming that the company has retained earnings of $87,500, 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 0 decimal places, e.g. $38,487.) Preferred Common $enter a dollar amount rounded to 0 decimal places 17100 $enter a dollar amount rounded to 0 decimal places 70400 (b) The preferred stock is cumulative and nonparticipating. (Round answers to 0 decimal places, e.g. $38,487.) Preferred Common $enter a dollar amount rounded to 0 decimal places 51300 $enter a dollar amount rounded to 0 decimal places 36200 (c) The preferred stock is cumulative and 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 $enter a dollar amount rounded to 0 decimal places 61332 $enter a dollar amount rounded to 0 decimal places 38556

Answer 1

Coronado Corporation

a) The preferred stock is noncumulative and nonparticipating:

Allocation Preferred Stock Common Stock

of Dividends

$87,500 $17,100 ($190,000 * 9%) $70,400 ($87,500 - 17,100)

b) The preferred stock is cumulative and nonparticipating:

Allocation Preferred Stock Common Stock

of Dividends

$87,500 $51,300 ($190,000 * 9%)*3 $36,200 ($87,500 - 51,300)

c) The preferred stock is cumulative and participating

Allocation Preferred Stock Common Stock

of Dividends

$87,500 $48,944 $38,556

Amount due $17,100 ($190,000 * 9%)

Participation $31,844 = $31,844/$87,500 * 100 = 36.4%

Participation = $87,500 - ($17,100 + $38,556) = $31,844

Step-by-step explanation:

a) Data and Calculations:

Outstanding capital stock:

9% Preferred stock = 1,900 shares of $100 par value ($190,000)

Common stock = 5,400 shares of $50 par value ($270,000)

Assuming retained earnings = $87,500 to be paid out in dividends.

No preference stock dividends were paid out during the last 2 years.

1) The preferred stock is noncumulative and nonparticipating:

Allocation Preferred Stock Common Stock

of Dividends

$87,500 $17,100 ($190,000 * 9%) $70,400 ($87,500 - 17,100)

2) The preferred stock is cumulative and nonparticipating:

Allocation Preferred Stock Common Stock

of Dividends

$87,500 $51,300 ($190,000 * 9%)*3 $36,200 ($87,500 - 51,300)

3) The preferred stock is cumulative and participating

Allocation Preferred Stock Common Stock

of Dividends

$87,500 $48,944 $38,556

Amount due $17,100 ($190,000 * 9%)

Participation $31,844 = $31,844/$87,500 * 100 = 36.4%

Participation = $87,500 - ($17,100 + $38,556) = $31,844