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E15-21 - $58,000 $70,000(b Preferred stock is cumulative...

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E15-21 (Preferred Dividends) The outstanding capital stock of Pennington Corporation consists of 2,000 shares of $100 par value, 6% preferred, and 5,000 shares of $50 par value common. Assuming that the company has retained earnings of $70,000, 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. Preferred $ 12,000 (b) The preferred stock is cumulative and nonparticipating. Preferred $ 36,000 (c) The preferred stock is cumulative and participating. places, e.g. 5.1234. Round final answer to 0 decimal places, e.g. 25,320.) Preferred $ 44,444 Solution E15-21
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(a) Preferred Common Total Preferred stock is noncumulative, non-participating (2,000 × $100 × 6%) $12,000 Remainder ($70,000 - $12,000)
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Unformatted text preview: $58,000 $70,000 (b) Preferred stock is cumulative, nonparticipating ($12,000 × 3) $36,000 Remainder ($70,000 - $36,000) $34,000 $70,000 (c) Preferred stock is cumulative, participating $44,444 $25,556 $70,000 The computation for these amounts are as follows: Preferred Common Total Dividends in arrears (2 × $12,000) $24,000 $24,000 Current dividend 12,000 12,000 Pro rata share to common (5,000 × $50 × 6%) $15,000 15,000 Balance dividend pro rata 8,444 10,556 *19,000 $44,444 $25,556 $70,000 *Additional amount available for participation ($70,000 - $24,000 - $12,000 - $15,000) 19,000 Par value of stock that is to participate Preferred (2,000 × $100) $200,000 Common (5,000 × $50) 250,000 450,000 Rate of participation $19,000 ÷ $450,000 4.2222% Participating dividend Preferred, 4.2222% × $200,000 $8,444 Common, 4.2222% × $250,000 10,556 $19,000...
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