Love Theatre Inc. owns and operates movie theaters throughout New Mexico and Uta

Question

Love Theatre Inc. owns and operates movie theaters throughout New Mexico and Utah. Love Theatre has declared the following annual dividends over a six-year period: 2007, $36,000; 2008, $108,000; 2009, $162,000; 2010, $216,000; 2011, $270,000; and 2012, $315,000. During the entire period ending December 31 of each year, the outstanding stock of the company was composed of 30,000 shares of cumulative, 3% preferred stock, $100 par, and 100,000 shares of common stock, $20 par. Instructions: 1. Calculate the total dividends and the per-share dividends declared on each class of stock for each of the six years. There were no dividends in arrears on January 1, 2007. Summarize the data in tabular form. If required, round your answers to two decimal places. If the amount is zero, please enter "0".

Explanation / Answer

You need to carryover, from one year to the next, any amounts due to the preferred shareholders that remain unpaid from any previous years. The preferred shareholders must be paid cumulatively, in full, before any dividends are paid to the common shareholders. Once the preferreds are "made whole" you pay any remaining dividends available to the common shareholders. Then, of course, once you have all the yearly numbers, divide the dividends paid to each class of shareholder by the number of shares in each class. "P" = preferred shareholders, "co" = carryover (1st column=due preferred yearly base,2nd column is due preferred plus unpaid carryover from previous year to equal due P in current year, 3rd column is paid to preferred, 4th col.is the unpaid amt to carryover to next period, 5th column is amount paid common) Given the total dividends paid each year (listed in your question)... DuePpref yrly/Pyrly+co/paid Pref/ carryover/paid to common 40000/ 40000/ 16000/ 24000/ 0 40000/ 64000/ 48000/ 16000/ 0 40000/ 56000/ 56000/ 0/ 9000 40000/ 40000/ 40000/ 0/ 50000 40000/ 40000/ 40000/ 0/ 75000 40000/ 40000/ 40000/ 0/ 100000 Then divide each year Paid amount by the number of outstanding per class -i.e. 25,000 shares of preferred, and 100,000 shares of common.

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