Question

Calculator A company had stock outstanding as follows during each of its first three years of operations: 2,000 shares of 8%, $100 par, cumulative preferred stock and 30,000 shares of $10 par common stock. The amounts distributed as dividends are presented below. Determine the total and per-share dividends for each class of stock for each year by completing the schedule. Round dividends per share to the nearest cent. Enter "O" if no dividends are paid. . Preferred Common . Year Dividends Total Per Share Total Per Share 1 $12,000 $ $ $ $ 2 16,000 $ $ $ 3 27,800 $ $ $

Answer 1

		Preferred	Common
Year	Dividends	Total	Per Share	Total	Per Share
1	$12,000	$12,000	$6	0	0
2	$16,000	$16,000	$8	0	0
3	$27,800	$20,000	$10	$7,800	$0.26

Preferred Shares Outstanding = 2,000 and Common shares outstanding = 30,000

(NOTE: Dividend per share = Dividend Paid / Total Outstanding shares)

Wrokings:

i) Annual Dividend on preferred stock = 2,000 * $100 * 8%

= $16,000

ii) Dividend to cumulative preferred shareholder's :

Cumulative preferred shareholder's are entitled to receive any arrear dividend of previous years, hence the arrear for first year dividend is paid with third year dividend when the company can actually pay it.

Year 1 = $12,000 [ Arrear will be $4,000 ($16,000 - $12,000) ]

Year 2 = $16,000

Year 3 = $20,000 [ $16,000 + $4,000]

iii) Common shareholder's will receive the dividends only after it is paid to preferred shareholders,and we can see that there is no dividend left (infact arrear for cumulative preferred shareholder in year 1 is paid with year 3) in the years 1 and 2. Therefore, in the third year when all preferred dividend(plus arrears) is paid then the remaining dividend is for common shareholders.