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Accrued due to unavailability of access cash

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Please provide assistance with the following accounting problem. Please complete task in an excel spreadsheet with formulas and explanation. A company invests 9,050,000 into another company in the form of a convertible Class A preferred equity of the company (preferred stock) on March 07, 2018. This represents a 20% stake in the company when converted to common stock fully diluted.

The payment of dividends on the preferred stock shall be made in arrears on a quarterly basis at the beginning of each quarter commencing on the first day of the quarter after the full first quarter following the closing date. Dividends shall be cumulative and unpaid dividends shall be compounded annually. Dividends shall be paid on the unreturned investment amount at the following rates.

a. commencing on the closing date until the last day of the 24th month therefrom, the dividend shall be equal to 5%
b. commencing on the day after the second dividend period until 24 months thereafter, the dividend shall be equal to 6%
c. commencing on the day after the second dividend period until 24 months thereafter, the dividend shall be equal to 8%

Should there be no excess cash flow available for the company to pay the full amount of the dividends, the unpaid amount thereof shall continue to accrue, compounded annually, and be payable as soon as excess cash flow is available (Lets assume there is no excess cash flow for the first 24 months.

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Solution Summary

This solution helps to calculate dividend paid and accrued due to unavailability of access cash.

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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