The records of Hoffman Company reflected the following balances in the stockhold
ID: 2446467 • Letter: T
Question
The records of Hoffman Company reflected the following balances in the stockholders’ equity accounts at December 31, 2015:
On January 1, 2016, the board of directors was considering the distribution of a $62,600 cash dividend. No dividends were paid during 2014 and 2015.
Determine the total and per-share amounts that would be paid to the common stockholders and to the preferred stockholders under two independent assumptions:
The preferred stock is noncumulative. (Round "Per Share" to 2 decimal places and rest to the nearest dollar amount.)
2. Why were the dividends per share of common stock less for the cumulative preferred stock than the noncumulative preferred stock?
The dividends in arrears on the preferred stock had to be fulfilled before dividends could be paid for the current year.
What factors would cause a more favorable dividend for the common stockholders? (Select all that apply.)
Common stock, par $12 per share, 43,000 shares outstanding. Preferred stock, 8 percent, par $16 per share, 6,510 shares outstanding. Retained earnings, $226,000.Explanation / Answer
1.
a) Preferred stock is non-cumulative
Total amount to be paid to preferred stock holders = 6510 shares * $16 *8% = $8332.80
Per share amount to be paid to preferred stock holders = $8332.80 / 6510 = $1.28 per share
Balance amount shall be paidd to the common stock holders
Total amount to be paid to common stock holders = $62,600 - $8332.80 = $54,267.20
Per share amount to be paid to common stock holders = $54,267.20 / 43000 = $1.26 per share
b) Preferred stock is cumulative
The company has not ppaid any paidd dividend for last two years. Since the preferred stock is cumulative, the company has to pay the arrears for last two years also to preferred stock holders
Total amount to be paid to preferred stock holders = $8332.80 * 3 years = $24,998.40
Per share amount to be paid to preferred stock holders = $24,998.40 / 6510 = $3.84 per share
Total amount to be paid to common stock holders = $62,600 - $24,998.40 = $37,601.60
Per share amount to be paid to common stock holders = $37,601.60 / 43000 = $0.87 per share
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