Question

Andrews Company has $110,000 available to pay dividends. It has 2,000 shares of 10%, $100 par, preferred stock and 30,000 shares of $10 par common stock outstanding. The preferred stock is selling for $100 per share, and the common stock is selling for $25 per share.

Required

1. Determine the amount of dividends to be paid to each class of shareholder for each of the following independent assumptions. If an amount box required no entry, leave it blank.

a. Preferred stock is nonparticipating and noncumulative.

Andrews Company
Schedule of dividends to be paid
	Preferred	Common
Preferred dividend	$
Remainder to common		$
Total	$	$

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b. Preferred stock is nonparticipating and cumulative. Preferred dividends are 2 years in arrears at the beginning of the year.

Andrews Company
Schedule of dividends to be paid
	Preferred	Common
Dividends in arrears	$	$
Current preferred dividend		$
Remainder to common
Total	$	$

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c. Preferred stock is fully participating and cumulative. Preferred dividends are 1 year in arrears at the beginning of the year.

Andrews Company
Schedule of dividends to be paid
	Preferred	Common
Dividends in arrears	$	$
Current preferred dividends
Common proportional share
Remainder shared
Total	$	$

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2. For 1(a), compute the dividend yield on the preferred stock and the common stock.

	Dividend yield
Preferred stock	%
Common stock	%

Answer 1

1a) When preferred stock is non-participating and non-cumulative Non-participating preferred stock generally gets dividend at specific rate mentioned on the face of the stock agreement. Also since this preferred stock is non-cumulative , the holders does not get any arrears of dividend Schedule of dividend Calculation Amount Amount available for dividend Given 110,000 Dividends On preferred stock (2000*$100*10%) 20,000 On common stock $110000-$20000 90,000 Total dividends 110,000 1b) When preferred stock is non-participating and cumulative Non-participating preferred stock generally gets dividend at specific rate mentioned on the face of the stock agreement. Also since this preferred stock is cumulative , the holders get the arrears of dividend for the past years in priority to dividend payable to common stockholders Schedule of dividend Calculation Amount Amount available for dividend Given 110,000 Dividends ven Arrears of preferred stock dividend On preferred stock for CY (2000*$100*10%)*2 years (2000*$100*10%) $110000-$20000- $40000 40,000 20,000 On common stock Total dividends 50,000 110,000

B 1c) When preferred stock is fully barticipating and cumulative Fully participating preferred stock generally gets dividend at specific rate mentioned on the face of the stock agreement. Since the preferred stock is participating, the preferred stock may receive dividend on satisfaction of agreed conditions. Also since this preferred stock is cumulative , the holders get the arrears of dividend for the past years in priority to dividend payable to common stockholders Schedule of dividend Amount available for dividend Dividends Calculation Given Amount 110,000 (2000*$100*10%)*1 year 20,000 (2000*$100*10%) (30000*$10*12%) 20,000 36,000 Arrears of preferred stock dividend On preferred stock for current year On common stock (Note 1) Common proportional share to preferred stockholders Common proportional share to common stockholders Total dividends Note 2 13,600 Note 2 20,400 110,000 Note 1: In the absence of information, considered 12% as the rate of dividend for common stockholders (Refer Answer 2 below for the calculation. We have considered dividend yield as the rate of dividend

Note 2 Calculation Amount Amount available for proportional share 34,000 $110000-$20000- $20000-$36000 shares * $10+2000 shares*$100) 7% Rate of participation Proportional share On preferred stock 8% *2000 shares * $100 8% *30000 shares * $10 13,600 On common stock 20,400 34,000 Total 2) Dividend yield for Question 1a) Particulars Preferred stock Common stock 90,000 30,000 Dividend paid Number of shares Dividend paid per share Market price Dividend yield (Dividend per share/ Market price) 20,000 2,000 10 100 25 10% 12%