Question

The records of Hollywood Company reflected the following balances in the stockholders' equity accounts at the end of the current year: Common stock, $12 par value, 48,000 shares outstanding Preferred stock, 9 percent, $10 par value, 9,000 shares outstanding Retained earnings, $223,000 On September 1 of the current year, the board of directors was considering the distribution of an $66,000 cash dividend. No dividends were paid during the previous two years. You have been asked to determine dividend amounts under two independent assumptions (show computations): a. The preferred stock is noncumulative. b. The preferred stock is cumulative. Required: 1. Determine the total and per share amounts that would be paid to the common stockholders and the preferred stockholders under the two independent assumptions. (Round your "per share" amounts to 2 decimal places.) Preferred Common Noncumulative: Total Per share Cumulative: Total Per share

Answer 1

a) The preferred shares are non-cumulative: Paid to Preffered shareholders Paid to Common shareholders Total Per share $8.100 $0.90 $57,900 $1.21 Total Workings: Number of shares (a) Preffered Common Share Share 9,000 48.000 Preferred dividends 9,000 shares * $10 * 9%) Balance to Common ($66,000 - $8.100) Total (b) $8.100 $57,900 $8.100 $57.900 $8.100 $57.900 $66,000 Per Share (b/a) $0.90 $1.21 b) The preferred shares are cumulative: Paid to Preffered shareholders Paid to Common shareholders Total Per share $24,300 $2.70 $41,700 $0.87 Total Workings: Number of shares (a) Preffered Common Share Share 9.000 48.000 Preferred dividends arrears (9,000 shares * $10 * 9% * 2 years) Preferred dividends Current (9.000 shares * $10 * 9%) Balance to Common (566,000 - $16,200 - $8.100) Total (6) $16,200 $8.100 $41,700 $24,300 $41,700 $16,200 $8.100 $41,700 $66,000 Per Share (b/a) $2.70 $0.87