Question

Dividends Per Share Imaging Inc., a developer of radiology equipment, has stock outstanding as follows: 22,000 shares of cumulative preferred 3% stock, $160 par, and 73,000 shares of $25 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $70,840; second year, $150,360; third year, $179,230; fourth year, $193,200. 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". Preferred stock (dividend per share) $ $ 1st Year 3.22 0 2nd Year $ 6.83 X $0 0 * $ $ 3rd Year 4.35 * 1.15 * $ $ 4th Year 4.80 1.20 V Common stock (dividend per share) Feedback Check My Work Is the preferred stock cumulative or non-cumulative stock? Determine what amount of current dividends that preferred stock should receive per year. Is the question asking for a per share amount or total amount per class of stock?

Answer 1

Solution Imaging Inc Determination of the dividends per share on each class of stock for each of the four years: 1st Year 2nd Year 3rd Year 4th Year Preferred Stock (dividend per share) $3.22 $6.38 $4.80 $4.80 Common Stock (dividend per share) 0 $0.14 $1.009 $1.20 Computations: Calculation of dividends on cumulative preferred stock: Dividends paid Year 1 Year 2 Year 3 Year 4 1% Cumulative Preferred Stock $70,840 $140,360 $105,600 $105,600 Common Stock 0 $10,000 $73,630 $87,600 Explanation and computations: 22,000 shares of 3% Preferred stock at $160 each - $3,520,000 Preferred stockholders are given preference in payment of dividends over common stockholders. Preferred stock dividends are paid first and any remaining dividends is paid to common stock holders. Also, since, the preferred stock is cumulative in nature, the unpaid preference dividends in any year are accumulated and paid in the subsequent year. Computations: Preferred dividend for first year – 3,520,000 x 3% = $105,600 Preferred dividends paid in first year = $70,840 No dividends are left to be paid to common stockholders in the first year. Since, the preferred stock is cumulative, the unpaid dividends accumulate and are paid along with the dividends of subsequent year. Hence, dividends for preferred stock in second year = 105,600 + (105,600 – 70,840) = $140,360 Total Dividends paid in second year = $150,360 Excess dividends after payment to preferred stockholders =150,360 -$140,360 = $10,000 Dividends to common stockholders in second year = $10,000 Preferred Dividends payable in third year = 105,600 Total dividends paid in third year = $179,230 Less: dividends paid to preferred stockholders = 105,600 Dividends paid to common stockholders in third year =73,630 Preferred Dividends payable in fourth year = 105,600 Total Dividends paid = $193,200 Dividends for common stockholders = 193,200 – 105,600 = $87,600 The excess of dividends paid after the preferred dividends is entirely paid to the common stockholders. Computation of EPS for each class of share:

Preference stockholders – Eps = dividends/number of shares Year 1 = 70,840 /22,000 = $3.22 per share Year 2 = $140,360/22,000 = $6.38 per share Year 3 = $105,600/22,000 = $4.80 per share Year 4 - $105,600/22,000 = $4.80 per share Common stockholders – Year 1 = 0 dividends paid, hence EPS = 0 Year 2 = $10,000/73,000 = $0.14 per share Year 3 = $73,630/73,000 = $1.009 per share Year 4 = $87,600/73,000 = $1.20 per share