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I need help with calculating dividends...
AI Corporation issued 100,000 shares of $20 par value, cumulative, 8% preferred stock on January 1, 2009, for $2,100,000. In December 2011, AI declared its first dividend of $500,000.
If the preferred stock is not cumulative, how much of the $500,000 would be paid to common stockholders? If the preferred stock is cumulative, how much of the $500,000 would be paid to common stockholders? |
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If the preferred stock is not cumulative, how much of the $500,000 would be paid to common stockholders? 1) 8% on $2,000,000 = $160,000 2) The common stockholders would get 500,000 less 160,000 = $340,000. ______________________________ If the preferred stock is cumulative, how much of the $500,000 would be paid to common stockholders? 1) 8% on $2,000,000 = $160,000 2) The common stockholders would get 500,000 less 3 (160,000 )= $20,000. ______________________________ |
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Hodag, I think you probably made what is a very common error I see on this type of thing. Which is starting at 09, then counting "10 is 1 year, then 11 is 2 years." You know, where you're counting years on your fingers. The problem with that is that it works find if you're at 12/31/09 cause then 12/31/10 is one year. But not when you're starting at 1/1/09, because you have to count all of 09 as well. Same deal with counting months and I see this all the time. |
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Here is the matrix for the Journal Entries to recognize issuance of stock:
Cash Dr- (total of Preferred cost added to Common cost) Preferred Stock Cr- [ # Shares x Cost ($) of Par ] Common Stock Cr- [ # Shares x Cost ($) of Par ] "Issued preferred stock and common stock at par for cash." ------ Preferred Stock: (# shares) x ( Par Value of shares in $) = Cost, Preferred Common Stock: (# shares) x ( Par Value of shares in $) = Cost, Common |
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