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Chapter 13: Q8SE_2 (page 709)

Question: Copperhead Trust has the following classes of stock:

Preferred Stock—6%, \(12 par value; 8,500 shares authorized, 7,000 shares issued and outstanding

Common Stock—\)0.10 par value; 2,100,000 shares authorized, 1,400,000 shares issued and outstanding

Requirements

2. Assume the preferred stock is cumulative and Copperhead passed the preferred dividend in 2016 and 2017. In 2018, the company declares cash dividends of $46,000. How much of the dividend goes to preferred stockholders? How much goes to common stockholders?

Short Answer

Expert verified

Answer

Cumulative preference dividend will be $15,120 and common dividend will be $30,880.

Step by step solution

01

Basic Introduction

Cumulative Preference dividends are required sum of dividend payments that needs to be made by a firm to its preferred shareholders. Corporation is bound to pay cumulative dividends, even if they are paid at a later date than actual date.

02

Computation of dividend

2016- Preferred dividend in arrear (7,000 shares x $12 x 6%)

$5,040

2017- Preferred dividend in arrear (7,000 shares x $12 x 6%)

$5,040

2018- Preferred dividend (7,000 shares x $12 x 6%)

$5,040

2018- Common dividend ($46,000- $5,040- $5,040- $5,040)

$30,880

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Most popular questions from this chapter

Question: Journalizing issuance of stock—at par and at a premium

Colorado Corporation has two classes of stock: common, \(3 par value; and preferred, \)30 par value.

Requirements

1. Journalize Colorado’s issuance of 4,500 shares of common stock for $6 per share.

Question: Accounting for cash dividends

Java Company earned net income of \(85,000 during the year ended December 31, 2018. On December 15, Java declared the annual cash dividend on its 4% preferred stock (par value, \)120,000) and a $0.25 per share cash dividend on its common stock (50,000 shares). Java then paid the dividends on January 4, 2019.

Requirements

2. Journalize for Java the entry paying the cash dividends on January 4, 2019.

Organizing a corporation and issuing stock

Montel and Jeremy are opening a paint store. There are no competing paint stores in the area. They must decide how to organize the business. They anticipate profits of \(350,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice.

Requirements

3. If they decide to issue \)5 par common stock and anticipate an initial market price of \(20 per share, how many shares will they need to issue to raise \)2,750,000?

A Identifying sources of equity, stock issuance, and dividends

Voyage Comfort Specialists, Inc. reported the following stockholders’ equity on its balance sheet at June 30, 2018:

Preferred Stock—7%, ? Par Value; 625,000 shares

authorized, 280,000 shares issued and outstanding

Paid-In Capital:

\( 1,400,000

1,340,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 2,900,000

Total Paid-In Capital 5,640,000

Retained Earnings 12,000,000

Total Stockholders’ Equity \) 17,640,000

Common Stock—\(1 Par Value; 3,000,000 shares

authorized, 1,340,000 shares issued and outstanding

Requirements

4. No preferred dividends are in arrears. Journalize the declaration of a \)500,000 dividend at June 30, 2018, and the payment of the dividend on July 20, 2018. Use separate Dividends Payable accounts for preferred and common stock. An explanation is not required.

Eates Corp. issued 8,000 shares of no-par common stock for \(13 per share.

Requirements

1. Record issuance of the stock if the stock:

a. is true no-par stock.

b. has stated value of \)3 per share.
See all solutions

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