Nottebart Corporation has outstanding 10,000 shares of $100 par value, 6% preferred stock and 60,000 shares of $10 par value common stock. The preferred stock was issued in January 2017, and no dividends were declared in 2017 or 2018. In 2019, Nottebart declares a cash dividend of $300,000. How will the dividend be shared by common and preferred stockholders if the preferred is (a) noncumulative and (b) cumulative?
In noncumulative, the preferred stockholder received $60,000, but in cumulative, the preferred shareholder received $180,000.
All the privileges and benefits of the general membership are included in cumulative preference shares, such as the right to distribute more dividends, preference in dividend payment, and preference in payment over equity shares upon dissolution of the company.
Preferred stockholders would receive $60,000, which is calculated by 6% of the $1,000,000. The remainder distributed to common stockholders is $240,000, which is calculated by deducting the $60,000 from the $300,000.
Preferred stockholders would receive $180,000, which is calculated by 6% of the $1,000,000.It is then multiplied by 3, and the remainder distributed to the common stockholders is $120,000, which is calculated by deducting the 180,000 from the $300,000.
(Equity Items on the Balance Sheet) The following are selected transactions that may affect stockholders’ equity.
In the following table, indicate the effect each of the nine transactions has on the financial statement elements listed. Use the following code: I = Increase, D = Decrease, NE = No effect.
The following is a summary of all relevant transactions of Vicario Corporation since it was organized in 2017. In 2017, 15,000 shares were authorized and 7,000 shares of common stock ($50 par value) were issued at a price of $57. In 2018, 1,000 shares were issued as a stock dividend when the stock was selling for $60. Three hundred shares of common stock were bought in 2019 at a cost of $64 per share. These 300 shares are still in the company treasury.
In 2018, 10,000 preferred shares were authorized and the company issued 5,000 of them ($100 par value) at $113. Some of the preferred stock was reacquired by the company and later reissued for $4,700 more than it cost the company.
The corporation has earned a total of $610,000 in net income after income taxes and paid out a total of $312,600 in cash dividends since incorporation.
Prepare the stockholders’ equity section of the balance sheet in proper form for Vicario Corporation as of December 31, 2019. Account for treasury stock using the cost method.
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