Question

York's outstanding stock consist of 80,000 shares of non-cumulative 7.5% preferred stock with a $5 par value and also 200,000 shares of common stock with a $1 par value. During its first four years of operation the corporation declared and paid the following total cash dividend: 2013........$20,000 2014........$15,000 2015........$200,000 2016........$300,000

The first question

Answer 1

A.

Y's outstanding share consists of 80,000 shares of noncumulative 7.5% preferred stock with a $5 par value. Since the shares of common stock amounting to 200,000 with a $1 par value are outstanding. Therefore, the breakup pertaining to the dividend paid each year is shown below:

Year 2013

Hence up to $30,000 (0.075 x $5 x 80,000), first preference must be given to preferred stockholders. In the year 2013, the total cash dividend paid $20,000 which is less than $30,000 hence total amount needs to be paid to preferred stockholders which accounts for $20,000.

Year 2014

In the year 2014, total cash dividend paid of $15,000 which is less than $30,000 hence total amount needs to be paid to preferred stockholders which accounts for $15,000

Year 2015

Total dividend paid for the year 2015 is $200,000. Out of which $30,000 should be distributed to preferred stockholders. Hence the remaining amount needs to be paid to common stockholders of $170,000. (200,000 - 30,000)

Year 2016

Total dividend paid for the year 2016 is $300,000. Out of which $30,000 should be distributed to preferred stockholders. Hence remaining amount needs to be paid to common stockholders of $270,000 (300,000 - 30,000)

Therefore computation of the total dividend paid to preferred stock and the common stock for all the four years is shown below:

Year 2013 2014 2015 2016 Particulars Cash divident for the year 2013 Cash divident for the year 2014 Cash divident for the year 2015 Cash divident for the year 2016 Total Dividend Noncumulative Common Stock 20,000 15,000 30,000 170,000 30,000 270,000 95,000 440,000

Hence, it is ascertained that the total dividend paid to preferred stockholders for 4 years accounts for

$95,000 and to common stockholder accounts for $440,000.

B.

Par Value Dividend rate Annual peferred dividend Perference share Dividend per share 0.375 No of peferred share 80.000 Perferred dividend 30,000 5$ 7.50%

Year Total cash dividend paid Paid to perferred Paid to common Dividend in arrears at year end 10,000 15,000 2013 2014 2015 2016 20,000 15,000 200,000 300,000 535,000 20,000 15,000 55,000 30,000 120,000 145,000 270,000 415,000 25,000

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