Question

Imaging Inc., a developer of radiology equipment, has stock outstanding as follows: 17,000 shares of cumulative preferred 3% stock, $140 par, and 57,000 shares of $15 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $47,770; second year, $105,030; third year, $134,730; fourth year, $168,300. Compute the dividends per share on each class of stock for each of the four years. Round all answers to two decimal places. If no dividends are paid in a given year, enter "0".

1st Year 2nd Year 3rd Year 4th Year

Preferred stock (dividend per share) $ $ $ $

Common stock (dividend per share) $ $ $ $

Answer 1

1st Year :

Particulars	Amount	Dividend per share
Total distributed dividend	$47,770
Less: Preferred dividends. ( 140 X 3%) X 17,000 i. e $ 71,400 or $ 47,770 which ever is lower*	$47,770	$ 2.81
Dividend on common stock	$ 0	$ 0
Cumulative preferred dividends outstanding [ 71,400 - 47,770]	$ 23,630

* In the first year preferred dividend payable was $ 71,400 but available fund to pay dividends was $ 47,770, so preferred dividends paid $ 47,770 and outstanding preferred dividends remains ( 71,400 - 47,770) = $ 23,630 which will be accumulated and paid in the upcoming years if available profit will arise.

2nd Year :

Particulars	Amount	Dividend per share
Total distributed dividend	$105,030
Less: Preferred dividend current year + cumulative preferred dividends outstanding (year 1) [{140 X 3%}X 17,000] + 23,630	$ 95,030	$ 5.59
Dividend on common stock	$ 10,000	$ 0.18
Cumulative preferred dividends outstanding	Nil

3rd Year :

Particulars	Amount	Dividend per share
Total distributed dividend	$134,730
Less: Preferred dividends. ( 140X 3%) X 17,000	$ 71,400	$ 4.20
Dividend on common stock	$ 63,330	$ 1.11
Cumulative Preferred stock outstanding	Nil

4th Year :

Particulars	Amount	Dividend per share
Total distributed dividend	$168,300
Less : Preferred dividends (140 X 3%) X 17,000	$ 71,400	$ 4.20
Dividend on common stock	$ 96,900	$ 1.70
Cumulative preferred dividends outstanding	Nil

Summary of dividend per share :

	1st Year	2nd Year	3rd Year	4th Year
Preferred stock (Dividend per share )	$2.81	$5.59	$4.20	$4.20
Common stock. ( Dividend per share )	$ 0	$0.18	$1.11	$1.70

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