Comparing Stock and Cash Dividends (AP11-5)
Chicago Company had the following stock outstanding and retained earnings at December 31, 2011:
Common stock (par $8; outstanding. 35,000 shares) | $280,000 |
Preferred stock, 10% (par $15; outstanding, 8,000 shares) | 120,000 |
Retained earnings | 281.000 |
The board of directors is considering the distribution of a cash dividend to the two groups of stockholders. No dividends were declared during the previous two years. Three independent cases are assumed:
Case A: The preferred stock is noncumulative: the total amount of dividends is $31,000.
Case B: The preferred stock is cumulative: the total amount of dividends is $25,000.
Case C: Same as Case B. except the amount is $67,000.
Required:
1. Compute the amount of dividends, in total and per share, that would be payable to each class of stockholders for each case. Show computations.
2. Assume the company issued a 30 percent common stock dividend on the outstanding shares when the market value per share was $24. Complete the following comparative schedule including explanation of the comparative differences.
| AMOUNT OF DOLLAR INCREASE (DECREASE) | |
Item | Cash Dividend—Case C | Stock Dividend |
Assets | $ | $ |
Liabilities | $ | $ |
Stockholders' equity | $ | $ |
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