(Preferred Dividends) The outstanding capital stock of Edna Millay Corporation consists of 2,000 shares of \(100 par value, 8% preferred, and 5,000 shares of \)50 par value common.

Instructions

Assuming that the company has retained earnings of $90,000, 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.

1. The preferred stock is noncumulative and nonparticipating.
2. The preferred stock is cumulative and nonparticipating.
3. The preferred stock is cumulative and participating. (Round dividend rate percentages to four decimal places.)

S.no.

Preferred

Common

Total

(a)

Preferred stock is noncumulative, nonparticipating

$16,000

Remainder $\left(\$90,000-\$16,000\right)$

$74,000

$90,000

S.no.

Preferred

Common

Total

(b)

Preferred stock is cumulative, nonparticipating $\left(\$16,000\times 3\right)$

$48,000

Remainder $\left(\$90,000-\$42,000\right)$

$42,000

$90,000

S.no.

Preferred

Common

Total

(c)

Preferred stock is cumulative, participating

$57,778

$32,222

$90,000

S.no.

Preferred

Common

Total

Dividend in arrears $\left(2\times \$16,000\right)$

$32,000

$32,000

Current Dividend

16,000

16,000

Pro-rata shares to common

$\left(5,000\times \$50\times 8\%\right)$

$20,000

20,000

Balance divided pro-rata

9,778

12,222

22,000

$57,778

$32,222

$90,000

The additional amount available for participation

$\left(\$90,000-\$32,000-\$16,000-\$20,000\right)$

22,000

Par value of stock that is to participate

Preferred $\left(2,000\times \$100\right)$$200,000

Common $\left(5,000\times \$50\right)$250,000

450,000

Rate of participating dividend

$\left(\$22,000÷\$450,000\right)$

4.8889%

Participating dividend

Preferred,$\left(4.889\%\times \$200,000\right)$

Common, $\left(4.889\%\times \$250,000\right)$

$9,778

12,222

$22,000