Question

Chicago Company reported the following information at the end of the current year:

Common stock ( $10 par value; 43,000 shares outstanding)	$	430,000
Preferred stock, 10% ( $10 par value; 8,800 shares outstanding)		88,000
Retained earnings		285,000

The board of directors is considering the distribution of a cash dividend to the two groups of stockholders. No dividends were declared during the previous two years. Assume the three cases below are independent of each other.

Case A: The preferred stock is noncumulative; the total amount of all dividends is $35,000.

Case B: The preferred stock is cumulative; the total amount of all dividends is $26,400.

Case C: The preferred stock is cumulative; the total amount of all dividends is $90,800 .

Require 2. Assume Chicago Company issued a 30 percent common stock dividend on the outstanding shares when the market value per share was $24. Fill in the table below to show how this stock dividend would compare to Case C. (Leave no cells blank - be certain to enter "0" wherever required.)

AMOUNT OF DOLLAR INCREASE (DECREASE)
Item	Cash Dividend—Case C		Stock Dividend
Assets
Liabilities
Stockholders’ equity

Answer 1

Requirement 1 A D 58 59 I B C Dividend Preferred Common 8800 26200 264000 26400 64400 E F Dividend per share Preferred Common 0.61 61 Case A 62 Case B 63 Case C Total 35000 26400 90800 3 1.50 Dividend will be first distributed to preference shareholders and remaining to common stock holders. In Cumulative preferred stock all dividend arrears will be paid as dividend for all 3 years in arrears. Working as follows: A | | 60 B | C | D Dividend Preferred Common Total =88000*10% =35000-8800 =C61+B61 =88000*10%* 3 0 =C62+B62 =88000*10%*3 =90800-26400] =C63+B63 E | F | Dividend per share Preferred Common =B61/8800 =C61/43000 =B62/8800 =B63/8800 =C63/43000 61 Case A 62 Case B 63 Case C

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