Question

Fairmount Inc., a developer of radiology equipment, has stock outstanding as follows: 24,000 shares of cumulative preferred 4% stock, $150 par, and 80,000 shares of $20 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $96,480; second year, $133,920; third year, $249,600; fourth year, $277,600.

Calculate 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".

Answer 1

Annual preferred dividend = 4% * $150 * 24000 = $144000

Annual preferred dividend is $144000. Since the preferred stock is cumulative, if entire $144000 is not paid in any year, the remaining amount shall accumulate to be paid in the next year before any regular dividend. Any amount of dividend distributed over and above the regular preferred dividend and dividend in arrears, shall be paid to the common stockholders.

The dividend per share on each stock is calculated in the below table:

		Preferred Stock			Common Stock
Year	Total dividend distributed	Total Dividend	Dividend per share	Dividend in arrears	Total Dividend	Dividend per share
1	96480	96480	4.02	47520	0	0
2	133920	133920	5.58	57600	0	0
3	249600	201600	8.40	0	48000	0.60
4	277600	144000	6.00	0	133600	1.67

Dividend per share = Total dividend / Number of shares

Dividend in Arrears = Annual Dividend - Total dividend on preferred stock

In any year first dividend in arrears on preferred is paid. Then regular dividend of $144000 is paid on preferred stock. Remaining amount if any, is paid on common stock.