Question

Exercise 15-9 Partially correct answer. Your answer is partially correct. Try again. Splish Corporation has 12,000 shares of $100 par value, 8%, preferred stock and 46,800 shares of $10 par value common stock outstanding at December 31, 2017. Answer the questions in each of the following independent situations. (a) If the preferred stock is cumulative and dividends were last paid on the preferred stock on December 31, 2014, what are the dividends in arrears at December 31, 2017? Amount of dividends in arrears $Entry field with correct answer How should these dividends be reported? The cumulative dividend is Entry field with correct answer as a liability. (b) If the preferred stock is convertible into 7 shares of $10 par value common stock and 4,600 shares are converted, what entry is required for the conversion assuming the preferred stock was issued at par value? (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit Entry field with correct answer Entry field with correct answer Entry field with correct answer Entry field with correct answer Entry field with correct answer Entry field with correct answer Entry field with incorrect answer Entry field with correct answer Entry field with correct answer (c) If the preferred stock was issued at $109 per share, how should the preferred stock be reported in the stockholders’ equity section? (Enter account name only and do not provide descriptive information.) Splish Corporation Balance Sheet (Partial) Entry field with incorrect answer Entry field with incorrect answer $Entry field with incorrect answer Entry field with incorrect answer Entry field with incorrect answer Click if you would like to Show Work for this question: Open Show Work

Answer 1

ANSWER

(a)

Dividend per preferred share = Par value x Dividend rate

= 100 x 8%

= $8

Total preferred dividends = Dividend per preferred share x Number of preferred shares

= 8 x 12,000

= $96,000

Preferred dividend is in arrears for 3 years i.e. year 2015, 2016 and 2017.

Dividends in arrears at December 31, 2017 = 96,000 x 3

= $288,000

(b)

Journal

Date	Account title	Debit	Credit
	Preferred stock	460,000
	Common stock		322,000
	Additional paid in capital - In excess of par, common stock		138,000

Par value of preferred stock to be converted = 4,600 x 100

= $460,000

Each preferred stock is convertible into 7 shares of $10 par value common stock.

Hence, par value of common shares to be issued = 4,600 x 7 x 10

= $322,000

Difference between Par value of preferred stock to be converted and par value of common shares to be issued, would be transferred to Additional paid in capital - In excess of par, common stock.

c)

Preferred stock, par = 12,000 x 100 = $1,200,000

Additional paid in capital - In excess of par, preferred stock = 12,000 x 9 = $108,000

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