Chapter 11 – Exercise 1

Nur Inc. issued 500 common shares of $10 par value and 100 preferred shares of $100 par value
for a lump sum of $100,000.

Common Stock = 500 X 10 = 5000

1 Preferred Stock = 100X100=10,000
Cash = 100,000

Requirements:
1. How much of the proceeds should be allocated to the common and preferred shares,
respectively if the common shares of Nur are traded at $168 a share while Nur’s preferred
shares are traded at $210 each (round to the nearest dollar)?
Common = 500X168= 84,000
2 Preferred = 100X210= 21,000
84,000 + 21,000 =105,000

Common Paid-in Capital =(84,000/105,000)100,000=80,000 Total Should be = Cash

3 Preferred Paid in Capital= (81,000/105,000)100,000=20,000

Common Paid-in Capital - Common Stock = 80,000 – 5000 = 75,000

4
Preferred Paid-in Capital - Preferred Stock = 20,000-10,000 = 10,000
 2. How much of the proceeds should be allocated to the common and preferred shares,
respectively if only the common shares of Nur are traded at $170 per share while the
market prices of Nur’s preferred shares are unknown?

Common Paid-in Capital = 500X170= 85,000

2 Preferred Paid-in Capital = Chas – Common Paid-in Capital = 100,000-85,000=15,000

Common Paid-in Capital - Common Stock = 85,000 – 5000 = 80,000

3 Preferred Paid-in Capital - Preferred Stock = 15,000-10,000 = 5,000
3
 Chapter 11 – Drill 1A

Use the following information to answer questions 1 and 2.

This is the shareholders’ equity of Pinnacle on Dec 31, 2016.
• Common share (200,000 issued and outstanding) $ 800,000
• 7 percent, preferred shares (20,000 authorized, 18,000 issued) 200,000
• Retained earnings 650,000
• Total $ 1,650,000

Notes:
1. Preferred shares were issued on Jan 1, 2013.
2. No dividends declared or paid since 2013 until Pinnacle declared and paid $400,000
dividends on Dec 31, 2016.

1. Assuming preferred shares are both cumulative and participating in dividend distributions
in excess of a 10 percent dividend rate on the common shares, what was the total dividend
that preferred and common shareholders received, respectively on Dec 31, 2016?

Common Share = 800,000

Preferred Shares = 200,000
Total Shares = 800,000+200,000= 1,000,000
Years of arrears = 3 2013+2014+2105
Preferred Shares percentage = 7%
Dividend Rate= 10%
Total Paid = 400,000

Q1 Common Preferred Total

200,000*0.07*3
Dividends in arrears - = 42,000 42,000
800000*0.07 200000*0.07
Current dividends =56,000 = 14,000 70,000
Common shares 800000*0.03
(10-7=3%) = 24,000 - 24,000
136,000
800,00/1,000,000X264,000 200,00/1,000,000X264,000 400,000-136,000
Allocated dividends =211,200 =52,800 =264,000
Total dividends $ 291,200 $ 108,800 $ 400,000
 2. Assuming preferred shares are none cumulative, but participating in dividend distributions
in excess of a 20 percent dividend rate on the common shares, what were the total dividends
that preferred and common shareholders received, respectively on Dec 31, 2016?

Common Share = 800,000

Preferred Shares = 200,000
Total Shares = 800,000+200,000= 1,000,000
Preferred Shares percentage = 7%
Dividend Rate= 20%
Total Paid = 400,000

Q1 Common Preferred Total

Dividends in arrears - - -
800000*0.07 200000*0.07
Current dividends =56,000 = 14,000 70,000
Common share 800000*0.13
s (20-7=13%) = 104,000 - 104,000
174,000
800,00/1,000,000X226,000 200,00/1,000,000X226,000 400,000-174,000
Allocated dividends =180,800 =45,200 =226,000
Total dividends $340,800 $59,200 $ 400,000
 Chapter 11 Drill 1B

Use the following information to answer questions 1 and 2.

This is the shareholders’ equity of Rising Star on Dec 31, 2017.
• Common share (600,000 issued and outstanding) $ 1,200,000
• 6 percent, preferred shares (200,000 issued and outstanding) 800,000
• Retained earnings 1,000,000
• Total $ 3,000,000

Notes:
1. Preferred shares were issued on Jan 1, 2014.
2. No dividends declared or paid since 2014 until Rising Star declared and paid $800,000
dividends on Dec 31, 2017.

1. Assuming preferred shares are both cumulative and participating in dividend distributions
in excess of a 15 percent dividend rate on the common shares, what was the total dividend
that preferred and common shareholders received, respectively on Dec 31, 2017?

Common Share = 1,200,000

Preferred Shares = 800,000
Total Shares = 800,000+200,000= 2,000,000
Years of arrears = 3
Preferred Shares percentage = 6%
Dividend Rate= 15%
Total Paid = 800,000

Q1 Common Preferred Total

800,000*0.06*3
Dividends in arrears - = 144,000 144,000
1200000*0.06 800000*0.06
Current dividends =72,000 = 48,000 120,000
Common shares 1200000*0.09
(15-6=9%) = 108,000 - 108,000
372,000
1,200,000/2,000,000X428,000 800,00/2,000,000X428,000 800,000-372,000
Allocated dividends = 256,800 =171,200 =428,000

Total dividends $436,800 $363,200 $ 800,000

 2. Assuming preferred shares are none cumulative, but participating in dividend distributions
in excess of a 25 percent dividend rate on the common shares, what were the total dividends
that preferred and common shareholders received, respectively on Dec 31, 2017?

Common Share = 1,200,000

Preferred Shares = 800,000
Total Shares = 800,000+200,000= 2,000,000
Preferred Shares percentage = 6%
Dividend Rate= 25%
Total Paid = 800,000

Q1 Common Preferred Total

Dividends in arrears - - -
1200000*0.06 800000*0.06
Current dividends =72,000 = 48,000 120,000
Common shares 1200000*0.19
(25-6=19%) = 228,000 - 228,000
348,000
1,200,000/2,000,000X452,000 800,00/2,000,000X452,000 800,000-348,000
Allocated dividends = 271,200 =180,800 =452,000

Total dividends $571,200 $228,800 $ 800,000