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Fashonista Skincare Computing Dividends - Preferred Common

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Fashonista Skincare has 10,000 shares of 3%, $20 par value preferred stock and 90,000 shares of $2 par common stock outstanding. During a three-year period, Fashionista declared and paid cash dividends as follows: 2010, $3,000; 2011, $13,000; and 2012, $17,000.

1.) Compute the total dividends to preferred and to common for each of the three years if a.) preferred is noncumulative, b.) preferred is cumulative.

2.) For requirement 1.b., journalize the declaration of the 2012 dividends on December 22, 2012, and payment on January 14, 2013. Use separate Dividends payable accounts for preferred and common.

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Solution Summary

Please see the attachment for the solutions. The maximum dividend per share is computed for the preferred and then the three year period is analyzed assuming noncumulative and then cumulative. Entries for 2012 are shown for the cumulative assumptions.

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Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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