Question

Required information [The following information applies to the questions displayed below.) York's outstanding stock consists of 65,000 shares of noncumulative 6.0% preferred stock with a $5 par value and also 220,000 shares of common stock with a $1 par value. During its first four years of operation, the corporation declared and paid the following total cash dividends. $ Year 1 total cash dividends Year 2 total cash dividends Year 3 total cash dividends Year 4 total cash dividends 9,300 17,500 210,000 360,000

Answer 1

Solution

The complete calculation is given as follows,

	Par value per Preferred Share	Dividend Rate	Dividend per Preferred Share	Number of Preferred Shares	Preferred Dividends
Annual Preferred Dividend	$                 5.00	6%	$                 0.30	65,000	$           19,500.00
	Total Cash Dividend Paid	Paid to Preferred	Paid to Common	Dividends in Arrear at year-end	Notes: This calculation was made taking Preferred Stock as "Non-Cumulative". Under Non-Cumulative type, if profit is insufficient, neither the preferred dividend will be paid, nor it could be carried forward as arrear. Hence although no Preferred Dividend has been paid in Year 1 and Year 2 due to insufficient fund, Arrear Dividend in all these years will be NIL, and cannot be recovered even if there is sufficient profit in subsequent years.
Year 1	$        9,300.00	$                  -	$         9,300.00	$                  -
Year 2	$      17,500.00	$                  -	$       17,500.00	$                  -
Year 3	$ 2,10,000.00	$ 19,500.00	$   1,90,500.00	$                  -
Year 4	$ 3,60,000.00	$ 19,500.00	$   3,40,500.00	$                  -
Total:	$ 5,96,800.00	$ 39,000.00	$   5,57,800.00	$                  -
	Total Cash Dividend Paid	Paid to Preferred	Paid to Common	Dividends in Arrear at year-end	Notes: This calculation was made taking Preferred Stock as "Cumulative". Under Cumulative type, if profit is insufficient, although the preferred dividend will not be paid, but it would be carried forward as arrear. Hence as Preferred Dividend has not been paid in Year 1 and Year 2 due to insufficient fund, Arrear Dividend in all these years amounting to $ 39,000 will be recovered from the profit of Year 3, along with the Dividnd of Year 3 amounting to $ 19500, Gross Amount Payable = $ 19500 + $ 39000 = $ 58500.
Year 1	$        9,300.00	$                  -	$         9,300.00	$   19,500.00
Year 2	$      17,500.00	$                  -	$       17,500.00	$   19,500.00
Year 3	$ 2,10,000.00	$ 58,500.00	$   1,51,500.00	$                  -
Year 4	$ 3,60,000.00	$ 19,500.00	$   3,40,500.00	$                  -
Total:	$ 5,96,800.00	$ 78,000.00	$   5,18,800.00	$   39,000.00