Posted in Comprehensive Dividend Problem: Stockholders’ Equity
Macintosh Browning Corporation has the following stockholders’ equity at December 31, 1999:
|
Seven percent cumulative preferred stock: $120 par, |
|
|
50,000 shares authorized, 20,000 shares issued and outstanding |
$2,400,000 |
|
Common stock: $10 par, 500,000,000 shares |
|
|
authorized, 300,000 shares issued |
3,000,000 |
|
Additional paid-in capital |
900,000 |
|
Total contributed capital |
6,300,000 |
|
Retained earnings |
1,200,000 |
|
Treasury stock (74,000 shares of common stock) |
(1,110,000) |
|
Total stockholders’ equity |
$6,390,000 |
Required
a. Why did Macintosh issue preferred stock? What does the seven percent cumulative term indicate?
b. Assume that the board of directors has not declared a dividend in the past three years (the preferred stock was outstanding during these years). What is the amount of dividends outstanding for the previous three years on these cumulative shares?
c. Why might Macintosh prefer preferred stock rather than additional debt?
d. If the board declared and paid dividends to the preferred and common shareholders during the year, show the effects (use + and – and ignore $ amounts) on stockholders’ equity on the date of declaration, date of record, and date of payment.
