Question

The company had the following classes of stock outstanding as of Dec 31 2020.

Common stock: ($20 par value, 62k shares issued and 2k treasury stock shares)

Preferred stock: (6%, $200 par value, cumulative and fully participating, 4k shares outstanding

Dividend on the preferred stock have been in arrears of 2018 and 2019. On Dec 31, 2020, a total cash dividend of $270k.

Prepare table showing how the cash dividend will be divided between common and preferred stock.

Answer 1

Answer:

Common stock dividends		$          75,600
Preferred dividends
Preferred dividends : current year	$          48,000
Preferred dividends : previous year	$          96,000
Dividends allocated to preferred stock	$          50,400	$       194,400
Total dividends		$       270,000

Exaplnation

Common shares issued		62,000
Less: Treasury shares		2,000
Common shares outstanding		60,000
Common stock (60000*20)		$    1,200,000
Preferred stock (4000*200)		$       800,000
Total paid up capital		$    2,000,000

The previous period's unpaid dividend will be paid if the preference share is cumulative.
Total dividends		$       270,000
Less: Preferred dividends
Preferred dividends : current year (800000*6%)	$          48,000
Preferred dividends : previous years (2 years * 48000)	$          96,000	$       144,000
Total dividends paid to both types of shares		$       126,000
Dividends allocated to preferred stock (126000*(800000/2000000))		$          50,400
Dividends allocated to common stock (126000*(1200000/2000000))		$          75,600
Total dividends paid to both types of shares		$       126,000