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pipaiu i pait a be aftected by this additional information? CISE 11.4 nds: Preferred ommon A portion of the stockholders' equity section from the balance sheet of Walland Corporation appears as follows: Stockholders' equity Preferred stock, 9% cumulative, $50 par, 40,000 shares Preferred stock, 12% noncumulative, $100 par, 8,000 Common stock, $5 par, 400,000 shares authorized, issued, Assume that all the stock was issued on January 1 and that no dividends were paid during the first two years of operation. During the third year, Walland Corporation paid total cash dividends of $736,000 Compute the amount of cash dividends paid during the third year to each of the three classes of stock a. pute the dividends paid per share during the third year for each of the three classes of stock. Com What was the average issue price of each type of preferred stock? b. c.

Answer 1

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• All working forms part of the answer
• Requirement ‘a’

--9% preferred stock is cumulative, this means that dividends of earlier 2 years not yet paid will be paid now in third year.

--We must know how much annual dividend is to be accumulated.

A	Cumulative Preference shares value	$          2,000,000
B	Dividend rate	9%
C= A x B	Annual Dividend to be accumulated	$              180,000

--Answer ‘a’

	Dividend paid in third year	Working
Preferred Stock:
9% cumulative stock	$              540,000	[$180000 annual dividend x 3 year]
12% non cumulative stock	$                96,000	[$800,000 x 12%]
Common Stock	$              100,000	[$736000 - $540000 - $ 96000]
Total Dividend paid	$              736,000

• Requirement ‘b’

	Total Dividend paid	No. of shares outstanding	Dividends per share
	[A = calculated above]	[B]	[C = A/B]
9% Cumulative preferred stock	$              540,000	40,000	$                13.50 per share
12% non cumulative preferred stock	$                96,000	8,000	$                12.00 per share
Common Stock	$              100,000	400,000	$                  0.25 per share

• Requirement ‘c’

Average Issue price = Total Value of Preferred stock / Total no. of preferred stock shares issued

= ($ 2000000 + $ 800000) / (40000 shares + 8000 shares)

=2800000 / 48000

= 58.33333

Answer = $ 58.33