Q28E_1 - Horngren'S Financial And Managerial Accounting

Question

Computing dividends on preferred and common stock and journalizing

The following elements of stockholders’ equity are from the balance sheet of Sneed Marketing Corp. at December 31, 2017:

800,000

Preferred Stock—4%, \(2 Par Value; 80,000 shares

 authorized, 55,000 shares issued and outstanding

Paid-In Capital:

\) 110,000

Stockholders’ Equity

Common Stock—\(0.10 Par Value; 8,750,000 shares

 authorized, 8,000,000 shares issued and outstanding

Sneed paid no preferred dividends in 2017.

Requirements

1. Compute the dividends to the preferred and common shareholders for 2018 if total dividends are \)185,000 and assuming the preferred stock is noncumulative. Assume no changes in preferred and common stock in 2018.

Step-by-Step Solution

Answer

Preferred dividend: $4,400

Common dividend: $180,600

Step 1: Basic Introduction-

$\begin{array}{rcl}\mathbf{PreferredDividend}& \mathbf{=}& \mathbf{NumberofShares}\mathbf{\times }\mathbf{ParValue}\mathbf{\times }\mathbf{DividendRate}\\ & \mathbf{=}& \mathbf{55}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{\$}\mathbf{2}\mathbf{\times }\mathbf{4}\mathbf{\%}\\ & \mathbf{=}& \mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{400}\\ & & \end{array}$

$\begin{array}{rcl}\mathbf{CommonStock}& \mathbf{=}& \mathbf{TotalDividend}\mathbf{-}\mathbf{PreferredDividend}\\ & \mathbf{=}& \mathbf{\$}\mathbf{185}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{400}\\ & \mathbf{=}& \mathbf{\$}\mathbf{180}\mathbf{,}\mathbf{600}\\ & & \end{array}$

Step 2: Total dividend distribution-

2018
Preferred dividend	$4,400
Common dividend	$180,600
	$185,000