Question

5. Fedco Corporation was organized on January 1, 2020. During its first year, the corporation issued 2,000 shares of S50 par value preferred stock and 100,000 shares of $10 par value common stock. At December 31, the company declared the following cash dividends: 2020, $6,000, 2021, $13,000, and 2022 $29,000. Instructions: REQUIRED (12 points) Prepare a well-labeled schedule showing the allocation of dividends to each class of stock for each year, assuming the preferred stock dividend is 8% and cumulative. Write your final answers in the spaces provided below. Show your calculations. Dividends Paid To Preferred Stock Common Stock Year 2020 2021 2022

Answer 1

Dividends Paid To

Year	Preferred Stock $	Common Stock $
2020	6,000	0
2021	10,000	3,000
2022	8,000	21,000

2020

Dividend for preferred stock is (2000*$50=1,00,000*8/100) = $8,000. But the dividend declared is $6,000 only, so full amount is belonging to preferred stock only and there is no dividend for common stock.

2021

Dividend for preferred stock is (2000*$50=1,00,000*8/100) = $8,000 + previous years balance amount of dividend (8,000-6,000) $2,000, because it is a cumulative preference share. So preferred stock dividend is $10,000 and common stock dividend is (13,000-10,000) $3,000.

2022

Dividend for preferred stock is (2000*$50=1,00,000*8/100) = $8,000 and dividend for common stock is $21,000.