A company had stock outstanding as follows during each of its first three years
ID: 2400112 • Letter: A
Question
A company had stock outstanding as follows during each of its first three years of operations: 1,000 shares of 7%, $100 par, cumulative preferred stock and 51,000 shares of $10 par common stock. The amounts distributed as dividends are presented below. Determine the total and per-share dividends for each class of stock for each year by completing the schedule. Round dividends per share to the nearest cent. Enter "0" if no dividends are paid.
Preferred
Common
Year
Dividends
Total
Per Share
Total
Per Share
Preferred
Common
Year
Dividends
Total
Per Share
Total
Per Share
1 $5,250 $ $ $ $ 2 7,000 $ $ $ $ 3 36,770 $ $ $ $Explanation / Answer
Preferred
Common
Years
Dividends
Total
Per Share
Total
Per Share
1
$5,250
$5,250
$5.25
0
0
2
$7,000
$7,000
$7.00
0
0
3
$36,770
$8,750
$8.75
$28,020
$0.55
Explanation:
Total annual preferred dividend = No. of preferred shares x dividend rate x par value
= 1,000 x 0.07 x $ 100
= $ 7,000
Dividend distribution year 1:
Dividend paid on year 1 = $ 5,250
Dividend per share = Total dividend paid/No. of shares
Preferred dividend per share = $ 5,250/1,000 = $ 5.25
Arrears dividend for preferred shares in year 1 = $ 7,000 - $ 5,250 = $ 1,750
As there is shortage of dividend payment for preferred stocks, no dividend is paid to common stocks.
Dividend distribution year 2:
Total dividend to be paid for preferred stocks = $ 1,750 + $ 7,000 = $ 8,750
Dividend paid on year 2 = $ 7,000
Preferred dividend per share = $ 7,000/$ 1,000 = $ 7
As there is shortage of dividend payment for preferred stocks, no dividend is paid to common stocks.
Dividend distribution year 3:
Total dividend to be paid for preferred stocks = $ 1,750 + $ 7,000 = $ 8,750
Dividend per preferred stocks = $ 8,750/1,000 = $ 8.75
Total dividends paid for common stocks = $ 36,770 - $ 8,750 = $ 28,020
Dividend per common stocks = $ 28,020/51,000 = $ 0.54941 or $ 0.55
Preferred
Common
Years
Dividends
Total
Per Share
Total
Per Share
1
$5,250
$5,250
$5.25
0
0
2
$7,000
$7,000
$7.00
0
0
3
$36,770
$8,750
$8.75
$28,020
$0.55
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