Cumulative preferred stock outstanding
1. M. Vaughn Corporation has 17,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2022. No dividends were declared in 2020 or 2021. If M. Vaughn wants to pay $420,000 of dividends in 2022, what amount of dividends will common stockholders receive?
Amount of dividend $
2. For the year ending December 31, 2022, Sunland Inc. reports net income $137,000 and cash dividends $83,500.
Determine the balance in retained earnings at December 31, assuming the balance in retained earnings on January 1, 2022, was $218,500.
Balance in retained earnings $
3. On January 1, 2022, Pharoah Corporation had $1,435,000 of common stock outstanding that was issued at par. It also had retained earnings of $748,000. The company issued 45,000 shares of common stock at par on July 1 and earned net income of
$410,000 for the year.
Journalize the declaration of a 15% stock dividend on December 10, 2022, for the following independent assumptions. Creditaccount titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for theaccount titles and enter 0 for the amounts.)
a. Par value is $10, and market price is $18.
b. Par value is $5, and market price is $22.
Sample Solution
The total dividend payable to the common stockholders in 2022 can be calculated by first determining the amount of dividends due to preferred shareholders. This is done by multiplying the number of shares (17,000) by the par value ($100) and then multiplying this figure by the stated dividend rate (8%). This yields a total of $136,000 owed to preferred shareholders in 2022.
Once this amount has been determined we can then subtract it from the desired total payout of $420,000 leaving a remaining balance of $284,000. This amount is what will be available for common stockholders which can be calculated as follows: dividing $284,000 by 17,000 gives us an outcome of $16.71 per share which would represent their respective dividends in 2022.
In conclusion, M. Vaughn Corporation’s common stockholders are expected to receive a dividend payment of $16.71 per share if they declare a total payout of $420,000 in 2022; this takes into account any payments made to preferred shareholders beforehand or other associated costs that may arise.
