Question

1. (5 points) Cheyenne Corp. had 5,000 shares of 7%, $100 par value preferred stock and 40,000 shares of $5 par value common stock outstanding throughout 2018. No dividends were paid in 2016 or 2017. Determine the dividend amount that should go to common and preferred shareholders for the following scenarios. a. Assuming that total dividends declared in 2018 were $150,000, and that the preferred stock is not cumulative and is not participating. Common Shareholders' Dividends Preferred Shareholders' Dividends b. Assuming that total dividends declared in 2018 were $150,000, and that the preferred stock is cumulative and is not participating. Common Shareholders' Dividends Preferred Shareholders' Dividends C. Assuming that total dividends declared in 2018 were $150,000, and that the preferred stock is not cumulative and is fully participating. Common Shareholders' Dividends Preferred Shareholders' Dividends d. Assuming that total dividends declared in 2018 were $150,000, and that the preferred stock is cumulative and is fully participating. Common Shareholders' Dividends Preferred Shareholders' Dividends

Answer 1

a)

a) Preferred stock is non cumulative and non participating total amount of dividend for- Common stockholders = $115000 Preferred stockholders = $35000 Order of payment Total amount of dividend calculations preferred stock $35000 5000 $100 x 7% 2nd common stock $115000 $150000-$35000 When preferred stock is non cumulative the previous year dividends are not paid in current year and if the preferred stock is non participating then preferred stockholders don't get any surplus dividends apart from the fixed percentage of dividend. As a result, in case of preferred stock being non cumulative and non participating, first the preferred stockholders are paid the fixed dividend and the remaining amount is paid to common stockholders.

b)

b) Preferred stock is cumulative and non participating: total amount of dividend for - Preferred stockholders = $35700 + $17850 = $53550 Common stockholders = $26450 Order of payment Total amount of dividend Calculations preferred stock - arrears $70000 (5000x$100x7%)x2 Preferred stock - current year $35000 5000 $100x7% 3rd $150000 - $70000 - $35000 common stock $45000 When preferred stock is cumulative then the previous year dividends are paid first and then the current year dividend is paid after that. If preferred stock is non participating then preferred stockholders don't get dividends out of surplus. Therefore, if the preferred stock is cumulative and non participating then the dividends in arrears are paid first and the current year dividends are paid immediately after the arrear dividends are paid. After these two are paid the left over amount is paid to common stockholders.

c)

c) Preferred stock is non cumulative and fully participating: total amount of dividend for- Common stockholders = $14000+$28857 = $42857 Preferred stockholders = $35000+$72143 = $107143 Order of payment Total amount of dividend Calculations Preferred stock - current year $35000 5000x$100x7% common stock $14000 40000*$75*7% Participating dividends- preferred stock $72143 $500000*14.4286% common stock $28857 $200000*14.4286% 3rd

Calculations of participating rate: participating rate = remaining dividend/sum of par value of common and preferred stock = ($150000 - $35000 $14000)(40000*$5)+(5000*$100)] = $1010004[$200000+ $500000] = 0.1442857 = 14.4286%

d)

d) Preferred stock is Cumulative and participating : total amount of dividend for Common stockholders = $14000 + $8857 = $22857 # Preferred stockholders = $70000 + $35000 +$22143 = $127143 Order of payment Total dividend calculations preferred stock : arrears $70000 5000x$100x7%x2 2nd Preferred stock: current year $35000 5000X$100x7% Common stock $14000 40000 $5x7% Preferred stock : $22143 $500000*4.4286% Common stock: $8857 $200000*4.4286%

Calculation of rate of participation. Surplus amount = $150000 - $70000 - $35000- $140000 = $31000 Rate of participation = $31000/($200000+$500000) = 0.04428571 = 4.4286%