Question

Problem 2 Fairley Company paid cash dividends at the end of each of its first three years of operation as follows: Year 1 Year 2 Year 3 $ 100,000 $ 98,000 $1,260,000 The company's balance sheet showed the following accounts throughout the three-year period: 600,000 shares of $3 par common stock Paid-in capital in excess of par, common 120,000 shares of 6% preferred, $20 par stock Paid-in capital in excess of par, preferred $1,800,000 $4,200,000 $2,400,000 $3,600,000 Determine the amount of total dividends paid on common and preferred stock for each year, assuming that the preferred stock is cumulative and participating. Show your work! Preferred Common Year 1 Year 2 Year 3

Answer 1

Year	Total Dividends	Preferred Dividend	Common Dividends	Preferred Dividend Unpaid at the end if year
1	$            1,00,000	$                    1,00,000	$                                 -	$                                                                             44,000
2	$               98,000	$                       98,000	$                                 -	$                                                                             90,000
3	$         12,60,000	$                    2,34,000	$                  10,26,000	$                                                                                      -
Notes:
Annual Preferred Dividend = $2400000*6% =$144000
Preferred dividend unpaid =[ $144000- preferred dividend paid (if it is less than $144000)] + unpaid of last year
Year 1 = $144000-$100000 =$44000
Year 2 = (144000-98000) + 44000 =$90000
Common Stock Dividend = Total Dividend Paid - Preferred Dividend
Kindly give a positive rating if you are satisfied with this solution and please ask if you have any queries.