Vogue Skincare has 5,000 outstanding shares of 5%, $20 par preferred stock and 1
ID: 2364730 • Letter: V
Question
Vogue Skincare has 5,000 outstanding shares of 5%, $20 par preferred stock and 100,000 shares of $1.50 par common stock outstanding. During a three year period, Vogue declared and paid cash dividends as follows: 2010 of $4,000 2011 of $10,000; and 2012 of $20,000. 1. Compute the total dividends to preferred and common for each of the three years if the preferred stock is: a. Cumulative b. Non cumulative 2. For case 1a, journalize the declaration of the 2012 dividend on December 22, 2012, and payment on January 14, 2013.Explanation / Answer
1. Compute the total dividends to preferred and common for each of the three years if the preferred stock is: a. Cumulative b. Non cumulative 2. For case 1a, journalize the declaration of the 2012 dividend on December 22, 2012, and payment on January 14, 2013. Well, preferred stock have a defined dividend i.e.: 9% preferred stock with a $10 par value means that it promises to pay $0.90 per share per year in dividends ( 9% of $10 ) so 49,000 shares of 9% preferred stock at $10 par would be $44,100 per year.
In 2009, they declared $35,000 in dividends which is less than what was promised in the 49,000 preferred shares so they paid $0.7143 per share on the preferred shares and are $9,100 in arrears. There is nothing left for the common stock so no dividends are paid to common shares. Most preferred shares carry over the arrears till paid but it is possible for unpaid dividends to just expire in which case they are said to have passed.
In 2010, they declare $37,000 in dividends which is still less then the $44,100 promised to preferred shares so each preferred share receives $0.7551 and they add $7,100 to the $9,100 in arrears carried over from the previous year so they are now $16,200 in arrears.
In 2011, they declared $94,000 in dividends which is more than the $44,100 promised to preferred shares and there's even enough to pay the $16,200 in arrears so they pay a total of $60,300 to the preferred stock which is $1.2306 per share. This leaves $33,700 to be distributed to the common stock which amounts to $0.2751 per share.
In 2012, they declared $144,000 in dividends which is more than the $44,100 promised to preferred stock and they are not in arrears so the preferred stock receives $0.90 per share and the remaining $99,900 gets distributed to the common stock at $0.8155 per share.
Over the four years, $176,400 gets paid out to the 49,000 preferred shares which amounts to $3.60 per share, while $133,600 gets paid out to the 122,500 common shares which amounts to $1.0906 per share.
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