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Question : Problem 6 ABC, Inc. began operations in 2010 and has the following Capital Stock: ... Problem 6 ABC, Inc. began operations in 2010

Question: Problem 6 ABC, Inc. began operations in 2010 and has the following Capital Stock: ...

Problem 6

ABC, Inc. began operations in 2010 and has the following Capital Stock:

EHL, Inc. Capital Stock:

Preferred Stock:

# Shares

Stated Dividend Rate

Par value

Authorized shares of cumulative, non-participatory preferred stock

80,000

6%

$10

Issued shares of prefered stock

60,000

Outstanding shares of preferred stock

30,000

Common Stock:

# Shares

Authorized shares of $1 par value common stock

50,000

Issued shares of common stock

40,000

Outstanding shares of common stock

10,000

Required:

Points

a)

Compute the amount of Preferred Stock dividends.

1

Total Preferred Stock Dividends =

b)

On January 1, 2017, the Board of Directors declared dividends of

$ 20,000

1

Prepare the journal entry for the declaration of the dividends.

c)

On March 31, 2017, the dividends are disbursed to stockholders of record. Determine the allocation of dividends to Preferred and Common Stockholders.

1

d)

The Board of directors did not declare dividends during 2018. Determine the allocation of dividends to Preferred and Common Stockholders.

2

e)

On June 8, 2019 the Board of Directors declared dividends of

$100,000

3

Determine the allocation of dividends to Preferred and Common Stockholders.

f)

The following year, on November 30, 2020, the board declared dividends of

$100,000

2

Determine the allocation of dividends to Preferred and Common stockholders.

Total dividends for Preferred Stockholders

Total dividends for Common Stockholders

g)

Explain the advantages and disadvantages of investing in preferred stock.

1

Describe the difference between participating and non-participating preferred stock.

h)

1

Total points

12

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