ACCT 201 Principles of Financial Accounting
Practice Exam - Chapter 11
Reporting & Analyzing Equity
Dr. Fred Barbee

Solution to Short-Problem #2

Solution

A corporation had the following stock outstanding when the company's board of directors declared a $112,000 cash dividend during the current year:

Preferred Stock, $100 par value, 6%, 5,000 shares issued $500,000

Common Stock, $10 par value, 50,000 shares issued 500,000

Total: $1,000,000

Allocate the cash dividend between the preferred and common stockholders assuming the preferred stock is cumulative and nonparticipating and dividends are one year in arrears.

Allocation of Dividends Between Preferred and Common Stockholders

Explanation
Preferred
Dividend

Common
Dividend

Preferred dividends in arrears (5,000 x $100 x 6%)
$30,000

Current preferred dividend
30,000

Remainder to common ($112,000 - $60,000)

$52,000

Total
$60,000

$52,000

Preferred Stock, $100 par value, 6%, 5,000 shares issued	$500,000
Common Stock, $10 par value, 50,000 shares issued	500,000
Total:	$1,000,000

Explanation	Preferred Dividend	Common Dividend
Preferred dividends in arrears (5,000 x $100 x 6%)	$30,000
Current preferred dividend	30,000
Remainder to common ($112,000 - $60,000)		$52,000
Total	$60,000	$52,000