Question

Dividends Per Share Imaging Inc., a developer of radiology equipment, has stock outstanding as follows: 12,000 shares of cumulative preferred 4% stock, $150 par, and 40,000 shares of $25 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $48,240; second year, $105,760; third year, $127,600; fourth year, $146,400. 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 "O". 2nd Year 3rd Year 4th Year 1st Year 2.21 Preferred stock (dividend per share) Common stock (dividend per share)

Answer 1

	Year 1	Year 2	Year 3	Year 4
Dividends per share - preferred stock	$4.02	$7.98	$6.00	$6.00
Dividends per share - common stock	$0	$0.25	$1.39	$1.86

Working Note & Explanation;

Note: As per information of the question, it is clear that preferred stock are cummulative in nature hence in case of adequate dividend, arrears will be added to the next year.

So first of all let’s calculate actual dividend paid to preferred stock and common stock.

	Year 1	Year 2	Year 3	Year 4
Actual dividend paid for the year	$48,240	$105,760	$127,600	$146,400
Minimum dividend to be paid to preferred stock (12000 * $150) * 4%	$72,000	$72,000	$72,000	$72,000
Actual dividend paid to preferred stock	$48,240	$72000 + $23760 = $95760	$72,000	$72,000
Arrear dividend on preferred stock	$23,760	$0	$0	$0
Actual dividend paid to common stock	$0	$10,000	$55,600	$74,400

Now, calculate Dividends per share on preferred stock;

	Year 1	Year 2	Year 3	Year 4
Actual dividend paid to preferred stock	$48,240	$95,760	$72,000	$72,000
Number of preferred stock	12000	12000	12000	12000
Dividends per share (Dividend / number of shares)	$4.02	$7.98	$6.00	$6.00

Now, calculate Dividends per share on common stock;

	Year 1	Year 2	Year 3	Year 4
Actual dividend paid to common stock	$0	$10,000	$55,600	$74,400
Number of common stock	40000	40000	40000	40000
Dividends per share (Dividend / number of shares)	$0	$0.25	$1.39	$1.86