survey of accounting 6th edition chapter 8 problem 5 Yukon Bike Corp. manufactur
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survey of accounting 6th edition chapter 8 problem 5
Yukon Bike Corp. manufactures mountain bikes and distributes them through retail outlets in canada, montana, idaho, oregon, and washington. Yukon Bike Corp. has declared the following annual dividends over a sex-year period ending dec. 31 of each year. during the entire period, the outstanding stock of the company was composed of 40000 shares of 2% preferred stock, $65 par, and 50000 shares of common stock, $1 par.
Determine the total dividends and the pershare dividends declared on each class of stock for each of the six years.
Calculate the average annual dividend per share for each class of stock for the six year period.
Assuiming that the perferred stock was sold at $57.50 and common stock was sold at $5 at the beginning of the six yea period, calculate the average annual % return on initial shareholders' investment, based on the average annual dividend per share (a) for preferred stock and (b) for common stock.
1. Maximum yearly total preferred dividend: Preferred Dividends Common Dividends Total Year Dividends Total Per Share Total Per Share 2008 $ 28,000 $28,000 $0.00 2009 44,000 44,000 0.00 2010 48,000 48,000 0.00 2011 60,000 2012 76,000 2013 140,000 2. Average annual dividend for preferred: Average annual dividend for common: 3. a. Return on initial investment, preferred: b. Return on initial investment, common:Explanation / Answer
Solution:1
Year...... Dividend total...... preferred dividends....... preferred per share ......common dividend......common per share
2008............ 28000...................28000......................28000/40000=0.7.........0..................................0
2009...........44000.....................44000......................44000/40000=1.1.........0...................................0
2010..........48000......................48000......................48000/40000=1.2.........0..................................0
2011..........60000......................60000......................60000/40000=1.5.........0.................................0
2012.........76000.......................76000.....................76000/40000=1.9.........0...................................0
2013.........140000.....................56000.....................56000/40000=1.4.........84000...................84000/50000=1.68
Working note:
2008 = total preferred dividend = 40000*2%*65 = 52000 dividend each year. In 2008 only 28000 was paid, therefore, 24000 was in arrears.
2009 = 52000-44000 = 8000 is in arrears.
2010 = 52000 -48000 = 4000 is in arrears.
Total dividend in arrears upto 2010 = 8000+24000+4000=36000
2011 = 60000 was paid. 52000 + 8000 of total dividend in arrears.
Remaining balance of dividend in arrears = 36000-8000= 28000
2012 = 76000 was paid = 52000+ 24000 of outstanding dividend.
2013 = 52000 for the current year + 4000 of outstanding dividend.
solution:2
Since there are no outstanding dividend at the end of six year period, annual dividend per share for preferred = 52000*6/40000*6 = 1.3 average annual dividend per share.
For the common shareholders, total dividend paid = 84000/50000*6 = 0.28 average annual dividend per share.
Solution:3
a) Return on initial investment = 1.3/57.50 = 2.2%
b) Return on initial investment= 0.28/5=5.6%
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