A corporation's shareholders are not legally entitled to share in dividends unless its board of directors has declared these dividends. If dividends are not declared in a particular year, a holder of noncumulative preferred stock will never be paid the dividend for that year. Most preferred stock is cumulative preferred stock. If a corporation fails to declare a dividend on cumulative preferred stock at the stated rate on the usual dividend date, the amount becomes dividends in arrears. Dividends in arrears accumulate from period to period. A corporation cannot pay common shareholders any dividends until it has paid the preferred dividends in arrears. c. Preferred stock is fully participating and cumulative. Preferred dividends are 1 year in arrears at the beginning of the year. Andrews Company Schedule of dividends to be paid Preferred Common Dividends in arrears 20,000 Current preferred dividends 20,000 Common proportional share 20,000 Remainder shared Total 2. For 1(a), compute the dividend yield on the preferred stock and the common stock. If required, round your answers to one decimal place. Dividend yield Preferred stock Common stock % Record the adjustment for the allowance for uncollectible accounts: Preferred Common Particulars Stock Stock (Amount S)(Amount $) Dividend in arrears (1x2,000x 10% x$100) Current Preferred dividend (2,000 x10% x$100) Common proportional share (20,000x10% x$ 10) Remainder shared (S95,000-$60,000) $20,000 $20,000 $20,000 $17,500 $17,500 $57,500 Total $37,500 Working Notes: Remainder shared to preferred stock Number of shares x Par Value Preferred Stock Extra dividend x- (Number of shares x Par Value+ Number of shares outstanding x Par Value 2,000 x$100 $35,000x 2,000 x$100+20,000 x $10 $17,500 Remainder shared to common stock Common Stock = Extra dividend - Preferred Stock $35,000-$17,500 $17,500

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Andrews Company has $95,000 available to pay dividends. It has 2,000 shares of 10%, $100 par, preferred stock and 20,000 shares of $10 par common stock outstanding. The preferred stock is selling for $125 per share, and the common stock is selling for $ 20 per share.

Required

Compute the dividend yield on the preferred stock and the common stock. If required, round your answers to one decimal place.

	Dividend yield
Preferred stock	%
Common stock	%

A corporation's shareholders are not legally entitled to share in dividends unless its board of directors has declared these dividends. If
dividends are not declared in a particular year, a holder of noncumulative preferred stock will never be paid the dividend for that year. Most
preferred stock is cumulative preferred stock. If a corporation fails to declare a dividend on cumulative preferred stock at the stated rate on
the usual dividend date, the amount becomes dividends in arrears. Dividends in arrears accumulate from period to period. A corporation
cannot pay common shareholders any dividends until it has paid the preferred dividends in arrears.
c. Preferred stock is fully participating and cumulative. Preferred dividends are 1 year in arrears at the beginning of the year.
Andrews Company
Schedule of dividends to be paid
Preferred
Common
Dividends in arrears
20,000
Current preferred dividends
20,000
Common proportional share
20,000
Remainder shared
Total
2. For 1(a), compute the dividend yield on the preferred stock and the common stock. If required, round your answers to one decimal place.
Dividend yield
Preferred stock
Common stock
%

Record the adjustment for the allowance for uncollectible accounts:
Preferred
Common
Particulars
Stock
Stock
(Amount S)(Amount $)
Dividend in arrears (1x2,000x 10% x$100)
Current Preferred dividend (2,000 x10% x$100)
Common proportional share (20,000x10% x$ 10)
Remainder shared (S95,000-$60,000)
$20,000
$20,000
$20,000
$17,500
$17,500
$57,500
Total
$37,500
Working Notes:
Remainder shared to preferred stock
Number of shares x Par Value
Preferred Stock Extra dividend x-
(Number of shares x Par Value+
Number of shares outstanding x Par Value
2,000 x$100
$35,000x
2,000 x$100+20,000 x $10
$17,500
Remainder shared to common stock
Common Stock = Extra dividend - Preferred Stock
$35,000-$17,500
$17,500

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