Question 1

Mozart & Company paid cash dividends totaling $160,000 in 2016 and $85,000 in 2017. In 2018, the company will pay cash dividends of $800,000. There were no dividends in arrears as of January 1, 2016. There are 25,000 shares of common stock outstanding and 100,000 shares of 6 percent, $50 par cumulative preferred stock outstanding. What is the amount of cash dividends payable to common stockholders in 2018?

Accepted Answer

The answer of Mozart & Company paid cash dividends totaling...

Question 2

The Magic Flute Company paid cash dividends totaling $260,000 in 2016 and $210,000 in 2017. In 2018, the company will pay cash dividends of $980,000. There were no dividends in arrears as of January 1, 2016. There are 25,000 shares of common stock outstanding and 70,000 shares of 6 percent, $100 par cumulative preferred stock outstanding. What is the amount of cash dividends payable to common stockholders in 2018?

Accepted Answer

The answer of The Magic Flute Company paid cash dividends...

Question 3

On January 1, 2018, TNT, Inc. issued 1,500 shares of $80 par value, convertible preferred shares for $200,000. Each preferred share is convertible into one share of $10 par common stock. What is the necessary journal entry to record this transaction?

Accepted Answer

The journal entry should record the cash received and allocate the par value to the preferred stock and the excess to additional paid-in capital. The par value of the preferred stock is $80 per share, so for 1,500 shares, it is $120,000. The remaining $80,000 is recorded as additional paid-in capital.

Question 4

Stinson Corporation has 6% participating preferred shares. In 2018 the company pays common shareholders dividends that are 10% of common par value. What, if any, additional dividend will preferred shareholders receive?

Accepted Answer

Participating preferred shares allow preferred shareholders to receive their fixed dividend rate (6% in this case) and then participate in additional dividends paid to common shareholders. Since common shareholders received a 10% dividend, preferred shareholders will receive an additional 4% to match the common dividend rate.

Question 5

________ are shares for which the issuing entity has the right to "buy back" the shares at a specified price and future date.

Accepted Answer

Callable preferred shares are those that can be bought back by the issuing entity at a specified price and date.

Question 6

When accounting for non-mandatorily redeemable preferred shares, ________ will report them as a liability.

Accepted Answer

Under IFRS, non-mandatorily redeemable preferred shares are classified as a liability if they contain an obligation to deliver cash or another financial asset to the holder.

Question 7

Mozart & Company issued 2,500 shares of 5%, $60 par value, preferred stock for $190,000. The board of directors declared preferred dividends for one year on December 30, to be paid in January. What journal entry is necessary to record the declaration of dividends?

Accepted Answer

The preferred dividend is calculated as 2,500 shares x $60 par value x 5% = $7,500. The declaration of dividends is recorded by debiting "Dividends - preferred" and crediting "Dividends payable-preferred" for $7,500.

Question 8

________ preferred shares contain a provision requiring that preferred shareholders share ratably in distributions with common shareholders.

Accepted Answer

Participating preferred shares share ratably in distributions with common shareholders.

Question 9

On January 1, 2016, Warhol Company issued 1,000 shares of 10%, $200 par value, cumulative preferred stock for $300,000. No preferred dividends were declared in 2016 and 2017. On December 30, 2018, the Board declared $10,000 in dividends. What amount, if any, of preferred dividends are in arrears as of December 31, 2018?

Accepted Answer

The preferred dividends in arrears are $40,000 for 2016 and 2017 ($20,000 each year), and $20,000 for 2018, totaling $60,000. Since only $10,000 was declared, $50,000 remains in arrears.

Question 10

Bach, Inc. issued 1,600 shares of 8%, $140 par value, preferred stock for $150,000. The board of directors declared preferred dividends for one year on December 30, to be paid in January. What journal entry is necessary to record the payment of dividends?

Accepted Answer

The answer of Bach, Inc. issued 1,600 shares of 8%,...

Question 11

Where are dividends in arrears reported?

Accepted Answer

Dividends in arrears are disclosed in the notes to the financial statements because they represent obligations that have not yet been paid and are not recorded as liabilities on the balance sheet.

Question 12

Under U.S. GAAP, ________ preferred shares are classified as a liability.

Accepted Answer

Mandatorily redeemable preferred shares are classified as a liability under U.S. GAAP because the issuer is obligated to redeem the shares at a specified date or upon an event, making it similar to a debt obligation.

Question 13

________ preferred shares are preferred shares for which redemption is certain at a specified price on a specified date.

Accepted Answer

Mandatorily redeemable preferred shares are those that must be redeemed by the issuer at a specified price on a specified date, making redemption certain.

Question 14

Betta Corp. has 65,000 shares of $3 par common stock and 25,000 shares of $20 par 7% cumulative preferred stock. The company declares cash dividends of $80,000 during the current year and there are $8,000 dividends in arrears. What will be the total dividend payment to common stockholders?

Accepted Answer

The preferred stockholders are entitled to their annual dividend of $35,000 (25,000 shares x $20 par x 7%) plus the $8,000 in arrears, totaling $43,000. The remaining $37,000 ($80,000 - $43,000) is available for the common stockholders.

Question 15

________ preferred stock contains a provision that stipulates that, if the board of directors do not declare a dividend, the dividends to preferred accumulate.

Accepted Answer

Cumulative preferred stock includes a provision that allows dividends to accumulate if they are not declared by the board of directors, ensuring that shareholders receive their dividends in the future.

Question 16

Convertible preferred shares are often accounted for as a liability under both GAAP and IFRS.

Accepted Answer

Convertible preferred shares are typically accounted for as equity or a combination of equity and liability, depending on the specific terms and conditions, under both GAAP and IFRS.

Question 17

________ preferred stock shares allow the shareholder to convert his shares to common shares at a predetermined rate or exchange ratio.

Accepted Answer

Convertible preferred stock shares allow the shareholder to convert their shares into common shares at a predetermined rate or exchange ratio.

Question 18

On January 1, 2016, Warhol Company issued 3,000 shares of 10%, $200 par value, cumulative preferred stock for $700,000. No preferred dividends were declared in 2016 and 2017. On December 30, 2018, the Board declared $3,000 in dividends. How much of the dividend is allocated to preferred and common shareholders?

Accepted Answer

The preferred stock is cumulative, meaning any unpaid dividends accumulate. The annual dividend is 10% of $200 par value per share, which is $20 per share. For 3,000 shares, this is $60,000 per year. Since no dividends were paid in 2016 and 2017, $120,000 is owed to preferred shareholders before any common dividends can be paid. Therefore, the entire $3,000 declared in 2018 goes to preferred shareholders.

Question 19

Purrfect Paws Company issues 1,000 shares of $50 par preferred stock for $250,000. The company is not required to buy back the preferred stock. However, the preferred stock includes a redemption feature that gives the holder the option to redeem the shares for cash at specified dates. This would be classified as ________ under U.S. GAAP and ________ under IFRS.

Accepted Answer

The answer of Purrfect Paws Company issues 1,000 shares of...

Question 20

________ preferred shares are shares for which the issuing entity has the right to buy back the shares at a specified price and future date.

Accepted Answer

Callable preferred shares give the issuing company the right to repurchase the shares at a predetermined price after a specified date.

Quiz 15: Accounting for Stockholders Equity