Water Tower Company had the following stock outstanding and Retained Earnings at

Question

Water Tower Company had the following stock outstanding and Retained Earnings at December 31, 2009: On December 31, 2009, the board of directors is considering the distribution of a cash dividend to the common and preferred stockholders. No dividends were declared during 2007 or 2008. Three independent cases are assumed: Case A: The preferred stock is noncumulative; the total amount of 2009 dividends would be $30,000. Case B: The preferred stock is cumulative; the total amount of 2009 dividends would be $12,600. Dividends were not in arrears prior to 2007. Case C: Same as Case B, except the amount is $66,000. Compute the amount of 2009 dividends, in total that would be payable to each class of stockholders for each case. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

Explanation / Answer

Case A:

Preferred: $4200/6,000 shares = $0.70 per share

Common: $25,800/30,000 = $0.86 per share

Case B:

Preferred: $12,600/6,000 shares = $2.10 per share

Common: 0

Case C:

Preferred: $12,600/6,000 shares = $2.10 per share

Common: $53,400/30,000 = $1.78 per share

Case A

Case B

Case C

Preferred

0.70

2.10

2.10

Common

0.86

0.00

1.78

                                                                                                       

Case A

Case B

Case C

Preferred

0.70

2.10

2.10

Common

0.86

0.00

1.78

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