PA11-4 Calculating Common and Preferred Cash Dividends [LO 11-2, LO 11-3, LO 11-4]
Ritz Company had the following stock outstanding and Retained Earnings at December 31, 2018:
Common stock (par $1; outstanding, 600,000 shares) | $ | 600,000 |
Preferred stock, 10% (par $10; outstanding, 22,000 shares) | 220,000 | |
Retained Earnings | 910,000 | |
On December 31, 2018, the board of directors is considering the distribution of a cash dividend to the common and preferred stockholders. No dividends were declared during 2016 or 2017. Three independent cases are assumed:
Case A: | The preferred stock is noncumulative; the total amount of 2018 dividends would be $40,000. |
Case B: | The preferred stock is cumulative; the total amount of 2018 dividends would be $40,000. Dividends were not in arrears prior to 2016. |
Case C: | Same as Case B, except the amount is $85,000. |
Required:
1-a. Compute the amount of dividends in total payable to each class of stockholders if dividends were declared as described in each case.
1-b. Compute the amount of dividends per share payable to each class of stockholders if dividends were declared as described in each case.
each case.
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Requirement 1a: Compute the amount of dividend under each case as follows
Particulars | Case A | Case B | Case C |
Preferred | $22,000 | $40,000 | $66,000 |
Common | $18,000 | $0 | $19,000 |
Total | $40,000 | $40,000 | $85,000 |
Requirement 1b: Compute dividend per share under each case as follows
Particulars | Case A | Case B | Case C |
Preferred | $1.00 | $1.82 | $3.00 |
Common | $0.03 | $0.00 | $0.03 |
Notes:
Case A | |||
Particulars | Preferred | Common | Total |
Preferred Dividend ($220,000 × 10%) | $22,000 | $22,000 | |
Common Dividend ($40,000 − $22,000) | $18,000 | $18,000 | |
Total | $22,000 | $18,000 | $40,000 |
÷ Number of Shares | 22,000 | 600,000 | |
Dividend per share | $1.00 | $0.03 | |
Case B | |||
Particulars | Preferred | Common | Total |
Preferred dividend in Arrears ($220,000 × 10% × 2) | $40,000 | $40,000 | |
Common Dividend | $0 | $0 | |
Total dividend | $40,000 | $0 | $40,000 |
÷ Number of Shares | 22,000 | 600,000 | |
Dividend per share | $1.82 | $0.00 | |
Case C | |||
Particulars | Preferred | Common | Total |
Preferred dividend - Arrears ($220,000 × 10% × 2) | $44,000 | $44,000 | |
Preferred dividend - Current ($220,000 × 10%) | $22,000 | $0 | $22,000 |
Common Dividend ($85,000 − $44.000 − $22,000) | $19,000 | $19,000 | |
Total dividend | $66,000 | $19,000 | $85,000 |
÷ Number of Shares | 22,000 | 600,000 | |
Dividend per share | $3.00 | $0.03 |
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