Question

Dividends Per Share

Imaging Inc., a developer of radiology equipment, has stock outstanding as follows: 21,000 shares of cumulative preferred 1% stock, $110 par, and 70,000 shares of $20 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $15,540; second year, $40,660; third year, $79,240; fourth year, $153,300.

Compute the dividends per share on each class of stock for each of the four years. Round all answers to two decimal places. If no dividends are paid in a given year, enter "0".

	1st Year	2nd Year	3rd Year	4th Year
Preferred stock (dividend per share)	$	$	$	$
Common stock (dividend per share)	$	$	$	$

Answer 1

Preferred shares	21000
Par value	110
Dividend rate	1%
Common shares	70000
Preferred stock will receive a fixed dividend every year
Preferred stock (dividend per share)	1.1
=110*1%
Preferred stock total dividend	23100
=110*1%*21000

Since the preferred shares are cumulative in nature, any dividend less than the minimum required amount as calculated above will be carried forward and paid next year. Common shares will receive dividend only when all the current as well as past (accumulated) dividend on preferred shares has been paid off

	1st Year
Total dividend per share	15540
Preferred stock total dividend	15540
Preferred stock (dividend per share)	0.74	=15540/21000
Common stock (dividend per share)	0
Carried forward dividend on preferred share	0.36	=1.1-0.74
	2nd Year
Total dividend per share	40660
Preferred stock total dividend	23100	=110*1%*21000
Preferred stock (dividend per share)	1.1	=110*1%
Carried forward dividend on preferred share	7560	=23100-15540
Carried forward dividend on preferred share (per share)	0.36	=7560/21000
Total dividend per share- Preferred shares	1.46	=1.1+0.36
Total dividend - Preferred shares	30660	=23100+7560
Common stock total dividend	10000	=40660-30660
Common stock (dividend per share)	0.14	=10000/70000
	3rd Year
Total dividend per share	79,240
Preferred stock total dividend	23100	=110*1%*21000
Preferred stock (dividend per share)	1.1	=110*1%
Common stock total dividend	56,140	=79240-23100
Common stock (dividend per share)	0.80	=56140/70000
	4th Year
Total dividend per share	153,300
Preferred stock total dividend	23100	=110*1%*21000
Preferred stock (dividend per share)	1.1	=110*1%
Common stock total dividend	130,200	=153300-23100
Common stock (dividend per share)	1.86	=130200/70000

	1st Year	2nd Year	3rd Year	4th Year
Total dividend	15540	40660	79240	153300
Preferred stock (dividend per share)	0.74	1.46	1.1	1.1
Common stock (dividend per share)	0	0.14	0.80	1.86