Question

The outstanding capital stock of Edna Millay Corporation consists of 2,200 shares of $103 par value, 6% preferred, and 5,800 shares of $60 par value common.Assuming that the company has retained earnings of $100,000, 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 0 decimal places, e.g. $38,487.)I already have the answer for this Preferred : 13596 Common : 86404(b) The preferred stock is cumulative and nonparticipating. (Round answers to 0 decimal places, e.g. $38,487.)(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.)

Answer 1

a) Preferred dividend is $13,596 and Common stock is $86,404

b) Preferred dividend is $ 40,788 and Common stock is $59,212

c) Preferred dividend is $55,904.66 and Common stock is $44,095.34

Step-by-step explanation:

Preferred dividend = 2200 × 103 × .06 = $ 13,596

Preferred stock = 2200 × 103 = $ 226,600

Common stock = 5800 × 60 = $ 348,000

Distribution of current dividend and past dividend to preference shares = $40,788

Distribution of dividend to common stock = $ 348,000 × .06 =$ 20,880

Surplus profit after distribution of dividend to both shareholders

= $100,000 - $40,788 - $20,880

= $ 38,332

Preferred dividend = [38,332 × 226,600] ÷ [(226,600 +348,000) ]

= [38332 × 226600] ÷ 574600

= $15,116.66

Common stock = $38,332 - $15,116.66 = $ 23215.34

(b) Preferred dividend = $13,596 for current year + ($13,596 × 2 ) for past 2 years

= $13,596 + $27,192

= $ 40,788

Common stock = $100,000 - $40,788

= $59,212

(c) The preferred stock is cumulative and participating

Preferred dividend = $40,788 + $ 15,116.66

= $55,904.66

Common stock = $23,215.34 + $20,880

= $44,095.34