Question

(Print 1. PE 13-01.ALGO Algorithm) Show Me How Per Share Sandpiper Company has 30,000 shares of cumulative preferred 2 stock, 5100 par and 50,000 shares of $25 par common stock. The following amounts were distributed as dividends $90,000 48,000 Year 2 Year 180,000 Determine the dividends per share for ented and common stock for each year Round all answers to two decimal places. If an answer is er, entero Year 1 Year 2 Year 3 $ 5 Preferred stock (Oividends per share) Common stock (Dividends per share) 5

Answer 1

1)

Dividend Per Share:

	1st Year	2nd Year	3rd Year
Preferred stock	2.00	1.6	2.4
Common stock	0.60	0	2.16

Dividend is paid at par value.

Preferred stock dividend each year :

Number of shares* Par value * Rate

30000 shares * $100 * 2%

==> $60000 dividend each year.

Remember, cumulative preferred stock holder are always first entitled to the dividend . After all the arrear dividend (if any) and current dividend are paid to cumulative preferred stock holder, after that only common stock holders can receive dividend. First right to receive dividend is of cumulative preferred stock holder.

	Year 1	Year 2	Year 3
Dividend distributed (i)	90000	48000	180000
Preferred dividend to be paid each year (ii)	60000	60000	60000
Preferred stock (iii)	60000	48000*	72000**
Common stock (iv) = (i - iii)	30000	0	108000
Preferred dividend per share [(iii)/30000]	2	1.6	2.4
Common stock dividend per share [(iv)/50000]	0.6	0	2.16

* Cumulative preferred stock holder are entitled for $60000 dividend each year. But dividend distributed in 2nd year is only $48000. So, whole amount will be distributed to preferred stock and remaining $12000 ( 60000-48000) will be paid next year.

** $12000 of last year and $60000 of current year = $72000.

The residual dividend goes to common stock holder.

2) Journal entries:

Date	Particular	Amount (Dr)	Amount (Cr)
Jan 22	Cash (16000*50)	800000
	Common stock		800000
Feb 14	Cash (6000*60)	360000
	Preferred stock		360000
Aug 30	Cash (28000*68)	1904000
	Preferred stock (28000*60)		1680000
	Paid-in capital in excess of Par-Preferred stock (28000*8)		224000