Exercise 18-8 Reporting preferred shares [LO18-4]

Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark Mountain regions. The following disclosure note appeared in the companys 2016 annual report:

Note 5. Convertible Preferred Stock (in part):

The Company has the following Convertible Preferred Stock outstanding as of September 2016:

Date of issuance:

June

17, 2013

Optionally redeemable beginning

June

18, 2015

Par value (gross proceeds):

$

2,000,000

Number of shares:

80,000

Liquidation preference per share:

$

25

Conversion price per share:

$

31.14

Number of common shares in which to be converted:

64,226

Dividend rate:

6.645

%

The Preferred Stock is convertible at any time by the holders into a number of shares of Ozarks common stock equal to the number of preferred shares being converted times a fraction equal to $25 divided by the conversion price. The conversion prices for the Preferred Stock are subject to customary adjustments in the event of stock splits, stock dividends and certain other distributions on the Common Stock. Cumulative dividends for the Preferred Stock are payable in arrears, when, as and if declared by the Board of Directors, on March 31, June 30, September 30, and December 31 of each year.

The Preferred Stock is optionally redeemable by the Company beginning on various dates, as listed above, at redemption prices equal to 116% of the liquidation preference. The redemption prices decrease 1% annually thereafter until the redemption price equals the liquidation preference after which date it remains the liquidation preference.

Required:

1.

What amount of dividends is paid annually to a preferred shareholder owning 300 shares of the Series A preferred stock? (Round "Dividend Rate" to 3 decimal places.)

Par Value Preferred Shares	Dividend Rate	Total Annual Preferred Dividend	Number of Preferred Shares	Dividend per preferred share	Shares owned	Annual preferred dividend 300 shares
$2,000,000	6.645%	$49,838	80,000	$0.62298	300	$186.891

2.

If dividends are not paid in 2017 and 2018, but are paid in 2019, what amount of dividends will the shareholder receive? (Round your answer to 3 decimal places.)

3.

If the investor chooses to convert the shares in 2017, how many shares of common stock will the investor receive for his/her 300 shares? (Round your answers to 2 decimal places.)

Number of convertible preferred shares owned	Conversion Factor	Number of common shares received
64,226.00	$25/$31.14	300.00

4.

If Ozark chooses to redeem the shares on June 18, 2017, what amount will the investor be paid for his/her 300 shares? (Round "Per Share Amounts" to 2 decimal places except percentage values.)

	Per Share Amounts	Total 300 shares
Liquidation preference	$25.00
Redemption Percentage	116%
Redemption price, June 18, 2015	$29.00
Percent Reduction in Redemption Price	98%
Redemption price, June 18, 2017	$28.42	$8,526