Soycom Has 100 Shares Of 6% Cumulative Nonparticipating P

Soycom Has 100 Shares Of 100 6 Cumulative Nonparticipating Preferr

Soy.com has 100 shares of $100, 6% cumulative nonparticipating preferred stock, and 1,000 shares of $10 par value common stock outstanding. The company paid $2,000 cash dividends, including one-year dividends in arrears to preferred stockholders. Preferred stockholders received A. $1,200. B. $2,000. C. $182. D. $600. Rhubarb Corporation’s outstanding stock is 100 shares of $100, 11% cumulative nonparticipating preferred stock, and 2,000 shares of $12 par value common stock. Rhubarb paid $1,600 cash dividends during the year. Common stockholders received: A. $0. B. $500. C. $2,500. D. $1,100. In exchange for $1500.00 legal services to help set up the new company, Hickory Grove Corporation issued 100 shares of $10.00 par value stock to its attorney. The entry to record the issuance of the stock would include a: a. credit to Common Stock for $1,000.00 b. debit to Common Stock for $1,000.00 c. credit to Common Stock for $1,500.00 d. debit to Paid-in Capital in Excess of Par Value for $500.00.

Paper For Above instruction

The provided scenario encompasses multiple aspects of corporate finance, including dividend calculations for preferred and common stockholders and the accounting treatment for stock issuance in exchange for legal services. This paper aims to clearly analyze each component, elucidate relevant financial principles, and demonstrate proper journal entries aligned with standard accounting practices.

Dividend Distribution Analysis

Dividends distribution constitutes a key consideration for both preferred and common stockholders. The calculation of dividends to preferred stockholders hinges on their dividend rate, whether dividends are cumulative, and the existence of dividends in arrears. Common stockholders receive dividends only after satisfying preferred stock dividend obligations if dividends are declared.

Soycom's Dividend Scenario

Soycom's preferred stock is characterized as 100 shares of $100, 6% cumulative nonparticipating preferred stock. The total dividend owed per preferred share annually is calculated by multiplying the par value by the dividend rate: $100 x 6% = $6 per share, totaling $600 for all 100 shares. Since dividends are in arrears for one year, the preferred shareholders have a prior claim to dividends of $600 for the current year plus the $600 in arrears for the previous year, totaling $1,200. The company paid $2,000 in dividends, which first cover the arrears and current preferred dividends, leaving $800 to distribute to common stockholders.

Therefore, preferred stockholders received $1,200, satisfying both current and past obligations, aligning with Option A.

Rhubarb Corporation's Dividend Distribution

Rhubarb's preferred stock: 100 shares of $100, 11%, cumulative nonparticipating preferred stock. Preferred dividends per share: $100 x 11% = $11, totaling $1,100 annually. During the period, Rhubarb paid $1,600 in dividends. The preferred shareholders' share ($1,100) is fully covered, leaving $500 for the common shareholders. Since the preferred stock is cumulative, if dividends owed exceed the dividend declared, the unpaid dividends accrue as arrears, but in this scenario, the company paid more than the preferred dividends owed, so common shareholders receive $500.

Thus, common stockholders received $500, aligning with Option B.

Accounting for Stock Issuance

Hickory Grove Corporation issued 100 shares of $10 par value stock for legal services valued at $1,500. The appropriate accounting treatment involves recognizing the fair value of the stock issued as compensation. The journal entry includes a debit to Legal Services Expense or an asset account (depending on accounting practice) and a credit to Common Stock and Additional Paid-in Capital as needed.

Specifically, the credit to Common Stock should reflect the par value of the shares issued. With 100 shares at $10 par, the total credited to Common Stock is $1,000 (100 shares x $10 per share). The remaining $500 ($1,500 total value minus $1,000 par value) is recorded as Additional Paid-in Capital in Excess of Par.

Therefore, the correct journal entry includes a credit to Common Stock for $1,000 and a debit to Legal Services Expense (or similar account) for $1,500, with a corresponding credit to Paid-in Capital in Excess of Par for $500. Among the options, Option D correctly reflects this accounting entry.

Conclusion

In summary, the dividend distributions were calculated based on preferred stock dividend rates, cumulativeness, and arrears, with preferred shareholders receiving $1,200 in Soycom's case and $1,100 in Rhubarb's. The issuance of stock for legal services follows standard accounting principles, recognizing the fair value allocation between common stock and additional paid-in capital. Proper adherence to these principles ensures accurate financial reporting and compliance with accounting standards.

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