Question

The shareholders' equity of Davis Industries includes the data shown below. During 2019, cash dividends of $22,000 were declared. Shares authorized Shares issued & outstanding Par value Common stock 15,000 600 12,000 500 $ 2 100 Preferred stock 8% Required: Determine the amount of dividends payable to preferred shareholders and to common shareholders under each of the following assumptions regarding the characteristics of the preferred stock. Assumption A-The preferred stock is noncumulative and nonparticipating. Assumption B-The preferred stock is noncumulative, nonparticipating, callable and 3 years in arrears. Assumption C--The preferred stock is cumulative, nonparticipating, and 2 years in arrears. Assumption D---The preferred stock is noncumulative, participating up to an additional 5% and 2 years in arrears. Assumption E--The preferred stock is cumulative, fully participating and 1 year in arrears. Assumption F--The preferred stock is cumulative, participating up to an additional 10% and 3 years in arrears.

Answer 1

Answer

Amount available for Dividends 8 % Preferred Stock @$100 par Common Stock @$ 2 par Value 22,000 500 shares 67.57% 50,000 12,000 shares 32.43% 24.000 100% 74,000 Preferred shares generally have a dividend that must be paid out before dividends to common shareholders A PS non participating and non cumulative Preferred Common Preferred Dividend 4.000 Common stockholders Total 18.000 18.000 4,000 PS non participating and non cumulative callable and 3 years arrears Preferred Common Preferred Dividend Arrear (3 year) Preferred Dividend non cumulative 4,000 Common stockholders Total 18.000 4,000 18,000 PS non participating and but cumulative-2 years in arrear at the beginning C Preferred Common Preferred Dividend Arrear (2 year) 8,000 Current Year Preferred Dividend Common stockholders Total 4,000 10.000 12,000 10.000 PS is participating up to additional 5 % but non-cumulative-2 years in arrear at the beginning D Preferred Common Preferred Dividend Arrear (2 year) non cumulative Current Year Preferred Dividend Current Year Preferred Dividend additional 5 % of $50,000 Common stockholders 4,000 2,500 15,500 Total 6,500 15,500 PS fully participating and cumulative-1 years in arrear at the beginning Participating preferred stock allows for dividends greater than the stated dividend. 8000 First PS will get arrear dividend and current year dividend i.e for 2 years Balance will allocated to both PS and CS in the ratio of the total par value Preferred Common Preferred Dividend Arrear (1 year) Current Year Preferred Dividend Remainder ((ratio of total par value)) Total 4,000 4,000 9.459 4,541 17.459 4,541 PS is participating up to additional 10 % and-cumulative -3 years in arrear at the beginning Preferred Common Preferred Dividend Arrear (3 year) Current Year Preferred Dividend Participating (ratio of total par value) Total 12,000 4.000 1.946 4,054 20.054 1.946