Chapter 10, Problem 8SE

Accounting for cash dividends (Learning Objective 4) 10-15 min.

Zepher, Inc., prepared the following stockholders’ equity section as of December 31, 2018.

Stockholders' Equity
Paid-in Capital:
Preferred Stock, 5%, $80 par, 6,000 shares authorized,
1.000 shares issued and outstanding	$ 80,000
Common Stock, $10 par, 25,000 shares authorized,
9,000 shares issued and outstanding	90,000
Paid-in Capital in Excess of Par—Common	85,000
Total Paid-in Capital	3255,000
Retained Earnings	145,000
Total Stockholders’ Equity	$400,000

Requirement

1. Answer the following questions about Zepher, Inc.’s dividends:

1. a. How much in dividends must Zepher, Inc., declare each year before the common stockholders get any cash dividends for the year?
2. b. Suppose Zepher, Inc., declares cash dividends of $22,000 for 2018. How much of the dividends goes to preferred? How much goes to common?
3. c. Is Zepher, Inc.’s preferred stock cumulative or noncumulative? How can you tell?
4. d. Suppose Zepher, Inc., passed the preferred dividend in 2016 and 2017. In 2018, the company declares cash dividends of $19,000. How much of the dividends goes to preferred? How much goes to common?