3)(18 points) Rensing, Inc. has 800 shares of S100 par value 6% preferred stock

Question

3)(18 points) Rensing, Inc. has 800 shares of S100 par value 6% preferred stock t 12,000 shares of $1 par value common stock outstanding, each having a par value also has $10 per share. No dividends were declared or paid during 2010. In 2011 $5,000 divideng were paid and in 2012 $20,000 dividends were paid Instructions 0w much dividends will the preferred and common stockholders receive in each of the years 2010, 2011 and 2012 under the following assumptions: (a) The preferred is noncumulative (9) 2010 2011 2012 Dividends Paid Preferred Shareholders Dividends in Arrears Common Shareholders P/F cis Dividends per share (b) The preferred is cumulative (9) 2010 2011 2012 Dividends Paid Preferred Shareholders Dividends in Arrears Common Shareholders Dividends per share P/F ciS

Explanation / Answer

Answer- a

When prefered in non- cumulative

$1.267

($20,000-$4,800/12,000 shares)

Working note -1: for

Calculation of dividend to be paid to Preference shareholders:

6% preference shares value = 800 shares X $100 per share = $80,000

Dividend to be paid = $80,000 X 6% = $4,800

Preference dividend per share = $4,800/ 800 shares = $6 per share

* the process is same for 2012 year also.

Working note -2:

Calculation of dividend to be paid to common stockholders:

No .of shareholders = 12,000 shares

Divided remaining after paying to preference shareholders = $4,800 - $5,000 = $200

Dividend per share to paid to common stock holders = $200/ 12000 =$0.0166 per share

* the process is same for year 2012 also.

Answer -b

When prefered in non- cumulative:

$4,800*

(of 2010)

$4,600

(4,800+4,800-5,000)

$6.25

(5000/800)

$11.75

(4,600+4,800)/800

$0.88

($20,000-$4,600-$4800/ ,12,000 shares

*Per year preference dividend = $80,000 X 6% =$4,800

Hope this is useful and thank you!!!!!!!!

2010 2011 2012 Dividends paid Nil $5,000 $20,000 Preference shareholders / No. of shares 800 800 800 Divideds in arrears Nil Nil Nil common shareholders / No. of shares 12,000 12,000 12,000 Dividend per share - Prefered stock Nil $6 $6 - Common stock Nil $0.0166

$1.267

($20,000-$4,800/12,000 shares)

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