The outstanding capital stock of Kingbird Corporation consis

The outstanding capital stock of Kingbird Corporation consists of 1,800 shares of $100 par value, 7% preferred, and 5,100 shares of $50 par value common.

Assuming that the company has retained earnings of $80,000, all of which is to be paid out in dividends, and that preferred dividends were not paid during the 2 years preceding the current year, state how much each class of stock should receive under each of the following conditions.

(a) The preferred stock is noncumulative and nonparticipating. (Round answers to 0 decimal places, e.g. $38,487.)

Preferred

Common

(b) The preferred stock is cumulative and nonparticipating. (Round answers to 0 decimal places, e.g. $38,487.)

Preferred

Common

(c) The preferred stock is cumulative and participating. (Round the rate of participation to 4 decimal places, e.g.1.4278%. Round answers to 0 decimal places, e.g. $38,487.)

Preferred

Common

Preferred		Common
$		$

Solution

Total Capital Preferred 180000 Equity 255000 435000 a The preferred stock is noncumulative and nonparticipating Preferred Dividend = 1,800 shares x $100 par value x 7% dividend = $12600 Remaining Payout = $80,000 - $12,600 = $67,400 TOTAL Preferred Dividend = $12600 TOTAL Common Dividend = $67400 (b) The preferred stock is cumulative and nonparticipating 1st:Preferred Dividend, 2 prior years = 1,800 shares x $100 par value x 7% dividend x 2 years = $25,200 2nd: Preferred Dividend, this year = 1800 shares x $100 par value x 7% dividend = $12,600 Remaining Payout = $80,000 - $12,600 - $25,200 = $42200 TOTAL Preferred Dividend = $37800 TOTAL Common Dividend = $42200 (c) The preferred stock is cumulative and participating 1st:Preferred Dividend, 2 prior years = 1,800 shares x $100 par value x 7% dividend x 2 years = $25,200 2nd: Preferred Dividend, this year = 1800 shares x $100 par value x 7% dividend = $12,600 3rd:Common Dividend = 5,100 shares x $50 par value x 7% dividend = $17,850 Remaining Payout = $80,000 - $12,600 - $25,200 - $17,850 = $24,350 4th:Participating Payout Preferred = $24350 x ($180,000 ÷ $435,000) = $10075.86 Common = $24350 x ($255,000 ÷ $435,000) = $14274.14 TOTAL Preferred Dividend = $25,200 + $12,600 + $10075.86 = $47875.86 TOTAL Common Dividend = $17850 + $14274.14 = $32124.14