The shareholders’ equity of Kramer Industries includes the data shown below. Dur
ID: 2450821 • Letter: T
Question
The shareholders’ equity of Kramer Industries includes the data shown below. During 2014, cash dividends of $240 million were declared. Dividends were not declared in 2012 or 2013.
Determine the amount of dividends payable to preferred shareholders and to common shareholders under each of the following two assumptions regarding the characteristics of the preferred stock.
($ in millions) Common stock $ 300 Paid-in capital—excess of par, common 900 Preferred stock, 8%, nonparticipating 150 Paid-in capital—excess of par, preferred 420
Explanation / Answer
Solution:
Assumption -A: Prefered Stock Non Cumilative
Preffered Stock 150,000,000 * 0.08
= 12,000,000
Cash Dividends 240,000,000
Less: Non-Cumilative Stock 12,000,000
Amount of Dividends to Common Stockholders = 228,000,000
(B). Assumption -B: Cumilative Prefered Stock:
Preffered Stock 150,000,000 * 0.08
= 12,000,000
Cash Dividends 240,000,000
Add: Cumilative Stock 12,000,000
Amount of Dividends to Common Stockholders = 252,000,000
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