ottebart Corporation has outstanding 11,400 shares of $103 par value, 5% preferr
ID: 2422602 • Letter: O
Question
ottebart Corporation has outstanding 11,400 shares of $103 par value, 5% preferred stock and 61,600 shares of $15 par value common stock. The preferred stock was issued in January 2014, and no dividends were declared in 2014 or 2015. In 2016, Nottebart declares a cash dividend of $313,000.
(a) Assume that the preferred are noncumulative.
How much dividend will the preferred stockholders receive?
How much dividend will the common stockholders receive?
(b) Assume that the preferred are cumulative.
How much dividend will the preferred stockholders receive?
How much dividend will the common stockholders receive?
Explanation / Answer
A) When preferred shares are non cumulative the dividend unpaid in any year does not accumulate and gets carried forward
Preferred dividend = 5% * 11400 * 103 = 58710
Common stock dividend = 313000 - 58710 = 254290
B) When prefernece shares are cumulative, unpaid dividends gets accumulated and are carried forward. In this case preferred dividends are unpaid for 2 years and dividend is also required to be paid for 2016
Preferred Dividend = 5% * 11400 * 103 * 3 = 176130
Common Stock Dividend = 313000 - 176130 = 136870
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