Fairmount Inc., a developer of radiology equipment, has stock outstanding as fol
ID: 2478184 • Letter: F
Question
Fairmount Inc., a developer of radiology equipment, has stock outstanding as follows: 18,000 shares of cumulative preferred 1% stock, $150 par, and 60,000 shares of $15 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $18,180; second year, $25,200; third year, $68,220; fourth year, $112,200. Calculate the dividends per share on each class of stock for each of the four years. Round all answers to two decimal places. If no dividends are paid in a given year, enter "0".
1st Year 2nd Year 3rd Year 4th Year
Preferred stock (dividend per share $ $ $ $
Common stock (dividend per s $ $ $ $
Explanation / Answer
Solution:
Year 1
Year 2
Year 3
Year 4
Preferred Dividend Paid during the year (refer note 1)
$18,180
$25,200
$37,620
$27,000
Number of Preferred Stock Shares outstanding
18,000
18,000
18,000
18,000
Preferred Stock (Dividend Per Share)
$1.01
$1.40
$2.09
$1.50
Dividend Paid to Common Stock holders (refer note 1)
$0
$0
$30,600
$85,200
Number of Common Stock Shares outstanding
60,000
60,000
60,000
60,000
Common Stock (Dividend Per Share)
$0
$0
$0.51
$1.42
Note 1 ---
Year 1
Year 2
Year 3
Year 4
Total Dividend Paid (given)
$18,180
$25,200
$68,220
$112,200
Beginning Accumulated Preferred Stock Dividend
$0
$8,820
$10,620
$0
Preferred Stock Dividend to be paid each year before paying any dividend to common stock holders (18,000*150*1%)
$27,000
$27,000
$27,000
$27,000
Total Dividend Payable to Preferred Stock holders
$27,000
$35,820
$37,620
$27,000
Less: Preferred Dividend Paid during the year
$18,180
$25,200
$37,620
$27,000
Ending Accumulated Preferred Stock Dividend
$8,820
$10,620
$0
$0
Dividend Paid to Common Stock holders after paying accumulated dividend to preferred stock holders (Total Dividend Paid - Dividend Paid to Preferred Stock holders)
$0
$0
$30,600
$85,200
Note 2 --- Preferred Stock are those shares which carry certain special or priority rights as follows
-- Dividend at a fixed rate is payable on these shares before any dividend is paid on equity share
-- At the time of winding up, capital is repaid to preference shareholders prior to equity capital.
If Preferred Stock is cumulative ---- it means dividend if any left unpaid in any year, the dividend is accumulated till the time it is paid.
Year 1
Year 2
Year 3
Year 4
Preferred Dividend Paid during the year (refer note 1)
$18,180
$25,200
$37,620
$27,000
Number of Preferred Stock Shares outstanding
18,000
18,000
18,000
18,000
Preferred Stock (Dividend Per Share)
$1.01
$1.40
$2.09
$1.50
Dividend Paid to Common Stock holders (refer note 1)
$0
$0
$30,600
$85,200
Number of Common Stock Shares outstanding
60,000
60,000
60,000
60,000
Common Stock (Dividend Per Share)
$0
$0
$0.51
$1.42
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