Question

Stockholders' equity of Ernst Company consists of 78,000 shares of $5 par value, 10% cumulative preferred stock and 270,000 shares of $1 par value common stock. Both classes of stock have been outstanding since the company's inception. Ernst did not declare any dividends in the prior year, but it now declares and pays a $115,000 cash dividend at the current year-end. Determine the amount distributed to each class of stockholders for this two-year-old company. Par Value per Preferred Share Dividend Rate Dividend per Preferred Share Number of Preferred Shares Preferred Dividend for two years Calculation of preferred dividend: Total cash dividend To preferred shareholders To common shareholders

Answer 1

	Par value per preferred share	Dividend rate		Dividend per preferred share	Number of preferred share	Preferred dividend for two years
Calculation of preferred dividend:	5	10	%	0.5	78,000	78,000
Total cash dividend	115,000
To preferred shareholders	78,000
To common shareholders	37,000

Calculations:

Dividend per share = 10% of $5 = 0.5

Preferred dividend for 2 years = 2 * 78,000*0.5 = $78000

Dividend for common shareholders = 115,000 - 78,000 = $37,000