Question

Splish Corporation has outstanding 52,000 shares of $50 par value, 5% preferred stock and 369,000 shares of $1 par value common stock. The preferred stock was issued in July 2017, and no dividends were declared in 2017 or 2018. In 2019, Splish declares a cash dividend of $485,000. How will the dividend be shared by common and preferred stockholders if the preferred is noncumulative? Preferred Stockholders Common Stockholders How will the dividend be shared by common and preferred stockholders if the preferred is cumulative? Preferred Stockholders Common Stockholders

Answer 1

Common and Non cumulative preferred stockholders in 2019

Stocks	Formula	Dividend
Preferred stockholders	52000 shares X $50 par value X 5%	$130000
Common stockholders	$485000 - $130000	$355000

Now we see that company has 52000 Preferred stock of 5% with par value of $50. meaning that in each share dividend receivable = (5% X $50 par value) = $2.5.
So dividend receivable by all 52000 preferred stockholders = ($2.5 X 52000 preferred shares) = $130000.
After distribution to all preference shareholders their due dividend, rest will go entirely to Common shareholders

Common and Cumulative preferred stockholders in 2019

Stocks	Formula	Dividend
Preferred stockholders	(52000 shares X $50 par value X 5%) X 3 years	$390000
Common stockholders	$485000 - $390000	$95000

Previous was the case of Non cumulative where if due to shortfall, Preferred stockholders don't get full dividend in a particular year than remaining dividend will not remain due in the following year. But such thing is not so in Cumulative years. The preferred shares were issued in 2017 and 52000 Preferred shareholders are due to receive $130000 of dividend in a year. So in 2019 when dividend is declared and shares are Cumulative, than first Preferred shareholders will be paid the remaining payable dividend of 2017 and 2018 as well and then whatever is left will be distributed to Common stockholders.