It was mid-December 20X5, and the Aguamaint people requested a meeting with you and Tom Fasbee. They wished to brief you on several 20X5 events and strategy changes. Most importantly, the Company had obtained financing through a preferred stock issue in March, and planned to declare cash dividends totaling $40,000 on December 22. Given the participating aspect of the preferred stock issue, Jerry was trying to figure out how to allocate the $40,000 among the current preferred and common stockholders before the looming January 20X6 payment date.

To help you with this, Jerry Loos provided the following information: An NYSE dealer was successful in placing the issue of 5,800 shares of convertible preferred $100 par value stock at $205 per share. Appropriate filings were made with the SEC and the State of Missouri, and the preferred stock was issued on March 1, 20X5. A total of 10,000 shares were authorized. The dividend rate is 5 percent, participating to 6 percent. The conversion rights call for common shares to be exchanged for the preferred shares on a share-for-share basis. The dealer absorbed the issue costs and recovered the profit margin on the sale to the public. The preferred stock has preference in involuntary liquidation to the extent of the issue price. He also assured you that no other common or preferred stock transactions had occurred, or would occur, prior to the declaration date.

REQUIRED:

Prepare a schedule for Jerry showing the appropriate allocation of the $40,000 dividend among the preferred and common shareholders.

From prior years there were already 15,000 shares outstanding of common stock with a $10 par value (I'm not sure if these numbers are to be included or where)

The solution should follow the following format, but with the numbers provided above:

Step 1: Preference to PS shareholders Total preferred par value Preference rate 700,000 1000% Preference to PS shareholders Step 2: Equivalency to CS shareholders Total common par value Equivalency rate 120,000 100096 Equivalency to CS shareholders Step 3: Distribution before participation Total dividend declareg 92,000 Preference to PS shareholders Equivalency to CS shareholders Total distributed before participation 70,000 12,000 82.000 Remaining participation dividend Step 4: Allocation of remaining dividend 820,000 Combined CS and PS par values Partial participation percentage Participating dividend 200%, 12.00% minus 10.00% If remaining dividend participating dividend allocate remaining based on par value proportions. Preferred allocation Common allocation $8,537 $1,463 700,000 divided by 820,000 120,000 divided by 820,000 Step 5: Dividend Allocatiorn Preferred amount (step 1) Total preferred dividend Preferred stock $70,000 $8,537 Participation amount (step 4) $78,537 Common stock Initial common equivalency (step 2) Participation amount (step 4) $12,000 $1463 Total common dividend $13,463 Total dividend $92,000