Question

Chicago Company reported the following information at the end of the current year: Common stock ( $5 par value; 42,000 shares outstanding) Preferred stock, 15% ( $12 par value; 8,700 shares outstanding) Retained earnings $210,000 104,400 284,500 The board of directors is considering the distribution of a cash dividend to the two groups of stockholders. No dividends were declared during the previous two years. Assume the three cases below are independent of each other. Case A: The preferred stock is noncumulative; the total amount of all dividends is $34,500. Case B: The preferred stock is cumulative; the total amount of all dividends is $46,980. Case C: The preferred stock is cumulative; the total amount of all dividends is $90,700.

Answer 1

1.

	Dividends			Dividend per share
	Preferred	Common	Total	Preferred	Common
Case A	$         15,660	$          18,840	$                  34,500	$         1.80	$           0.45
Case B	$         46,980	$                   -	$                  46,980	$         5.40	$               -
Case C	$         46,980	$          43,720	$                  90,700	$         5.40	$           1.04

2.

	Cash Dividend - Case C		Stock Dividend
Assets	Decrease	$          90,700	No effect	$              -
Liabilities	No effect	$                   -	No effect	$              -
Stockholder's Equity	Decrease	$          90,700	No effect	$              -

Since for stock dividend, amount is transferred from Retained Earnings to Common Stock.

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