Otis Thorpe Corporation has 10,000 shares of $100 par value, 8%, preferred stock and 50,000 shares of $10 par value common stock outstanding at December 31, 2025.

Instructions

Answer the questions in each of the following independent situations.

a. If the preferred stock is cumulative and dividends were last paid on the preferred stock on December 31, 2022, 

(1) What are the dividends in arrears on December 31, 2025, and 

(2) How should these dividends be reported?

b. If the preferred stock is convertible into seven shares of $10 par value common stock and 4,000 shares are converted, what entry is required for the conversion assuming the preferred stock was issued at par value?

c. If the preferred stock was issued at $107 per share, how should the preferred stock be reported in the stockholders’ equity section?