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Preferred Stock Entries and Dividends

ABC Corporation has 10,000 shares of $100 par value, 8%, preferred stock and 50,000 shares of $10 par value common stock outstanding at December 31, 2008.

a. If the preferred stock is cumulative and dividends were last paid on the preferred stock on December 31, 2005, what are the dividends in arrears that should be reported on the December 31, 2008, balance sheet? How should these dividends be reported?

b. If the preferred stock is convertible into seven shares of $10 par value common stock and 4,000 shares are converted, what entry is required for the conversion assuming the preferred stock was issued at par value?

c. If the preferred stock was issued at $107 per share, how should the preferred stock be reported in the stockholders' equity section?

Solution Preview

a. The preferred dividends per year = 10,000 shares X $100 par X 8% dividend = $80,000. Dividends are not paid for 3 years (2006 to 2008). The amount of dividends in arrears would be 80,000 X 3 = $240,000.
Dividends in ...

Solution Summary

The solution calculates the dividends reported, entry required for conversion and how to stockholders equity should be reported.

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