Question

The shareholders' equity of Kramer Industries includes the data shown below. During 2022, cash dividends of $170 million were declared. Dividends were not declared in 2020 or 2021. Common stock Paid-in capital-excess of par, common Preferred stock, 10%, nonparticipating Paid-in capital-excess of par, preferred ($ in millions) $ 360 1,440 180 360 Required: Determine the amount of dividends payable to preferred shareholders and to common shareholders under each of the following two assumptions regarding the characteristics of the preferred stock. (Enter your answers in millions (.e., 10,000,000 should be entered as 10).) Assumption A - The preferred stock is noncumulative. Assumption B - The preferred stock is cumulative. ($ in millions) Preferred Common Assumption A Assumption B

Answer 1

Answer:

	($ in million)
	Preferred	Common
Assumption A	18	152
Assumption B	54	116

​​​​​Explanation:

Assumption A :

Total cash dividends available = $170 million

Less : Dividend to Preference

shareholders for current year (180*10%) = ($18 million)

Balance to common shareholders = $152 million

:. Allocation :

Preferred : $18 million

Common : $152 million

Assumption B :

Total cash dividends available = $170 million

Less : Dividend to preferred Stock holders for :

2020: $(18 million)

2021: $(18 million)

2022: $(18 million)

Balance dividend available to

Common stock holders = $116

:. Allocation:

Preferred: $54 million

Common : $116 million