Question

Analyzing Cash Dividends on Preferred and Common Stock Potter Company has outstanding 14,000 shares of $50 par value, 10% preferred stock and 30,000 shares of $5 par value common stock. During its first three years in business, it declared and paid no cash dividends in the first year, $280,000 in the second year, and $70,000 in the third year. (a) If the preferred stock is cumulative, determine the total amount of cash dividends paid to each class of stock in each of the three years. Distibution to Preferred Common Stock Year 1 $Answer 0 $Answer 0 Year 2 $Answer 0 $Answer 0 Year 3 $Answer 0 $Answer 0 (b) If the preferred stock is noncumulative, determine the total amount of cash dividends paid to each class of stock in each of the three years. Distibution to Preferred Common Stock Year 1 $Answer 0 $Answer 0 Year 2 $Answer 0 $Answer 0 Year 3 $Answer 0 $Answer 0

Answer 1

(a) If the preferred stock is cumulative, determine the total amount of cash dividends paid to each class of stock in each of the three years.

Year	Preferred stock	Common Stock
1	0	0
2	14000*50*10%*2 = 140000	140000
3	70000	0
Total	210000	140000

(b) If the preferred stock is non cumulative, determine the total amount of cash dividends paid to each class of stock in each of the three years.

Year	Preferred stock	Common Stock
1	0	0
2	14000*50*10% = 70000	210000
3	70000	0
Total	140000	210000