A company was organized in January 2010 and has 2,000 shares of $100 par value,

Question

A company was organized in January 2010 and has 2,000 shares of $100 par value, 10%, nonparticipating preferred stock outstanding and 30,000 shares of $10 par value common stock outstanding.  It has declared and paid cash dividends each year as shown below. Calculate the total dividends distributed to each class of stockholders under each of the assumptions given.

Year 2010 $15,000

         2011 $36,000

         2012  $60,000

I need preferred dividend & common dividend for cumulative and noncumulative!

Explanation / Answer

Hi,

Please find the answer as follows:

Preferred Dividend each Year = 2000*100*.10 = 20000

Part A: Since Preferred Shares are noncumulative, any arrear will not be paid in the next year.. Therefore calculations will be simple as follows:

Part B: Since Preferred Shares are cumulative, any arrear will be paid/adjusted in the following year. Therefore, the amount of dividend falling short by 5000 in Year 1 (20000 - 15000) will be adjusted in the second year (20000 + 5000).

Thanks.

Year Dividends Declared and Paid(Given) Preferred Dividend (Shown Above)
Common Dividend (Difference)
2010 15000 15000 0 2011 36000 20000 16000 2012 60000 20000 40000

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