Question

Computing dividends on preferred and common stock and journalizing

Northern Communications has the following stockholders’ equity on December 31,

2018:

Preferred Stock—5%, \(11 Par Value; 150,000 shares authorized, 20,000 shares issued and outstanding

Paid-In Capital:

\) 220,000

760,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 680,0006

Total Paid-In Capital 1,660,000

Retained Earnings 200,000

Total Stockholders’ Equity \( 1,860,000

Common Stock—\)2 Par Value; 575,000 shares

authorized, 380,000 shares issued and outstanding

Requirements

1. Assuming the preferred stock is cumulative, compute the amount of dividends to preferred stockholders and to common stockholders for 2018 and 2019 if total dividends are \(9,000 in 2018 and \)45,000 in 2019. Assume no changes in preferred stock and common stock in 2019.

Short answer

In 2018, Preferred stock dividend paid is $9,000

In 2019, Preferred stock dividend paid is $13,000 and Common stock dividend paid is $32,000

Step-by-step solution

Basic Introduction

$\begin{array}{rcl}\mathbf{PreferredDividend}& \mathbf{=}& \mathbf{NumberofShares}\mathbf{\times }\mathbf{ParValue}\mathbf{\times }\mathbf{DividendRate}\\ & \mathbf{=}& \mathbf{20}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{\$}\mathbf{11}\mathbf{\times }\mathbf{5}\mathbf{\%}\\ & \mathbf{=}& \mathbf{\$}\mathbf{11}\mathbf{,}\mathbf{000}\\ & & \end{array}$

Step 2:Amount of dividend to preferred stockholders and to common stockholders for 2018 and 2019

2018
Preferred stock dividend paid	$9,000
Common stock dividend paid	$0
2019
Preferred stock dividend paid ($2,000 + $11,000)	$13,000
Common stock dividend paid ($45,000 - $13,00)	$32,000