The records of Hollywood Company reflected the following balances in the stockho

Question

The records of Hollywood Company reflected the following balances in the stockholders’ equity accounts at December 31, 2013: Common stock, par $11 per share, 49,000 shares outstanding Preferred stock, 12 percent, par $9 per share, 10,000 shares outstanding Retained earnings, $235,000 On September 1, 2014, the board of directors was considering the distribution of a $66,000 cash dividend. No dividends were paid during the previous two years. You have been asked to determine dividend amounts under two independent assumptions (show computations): a. The preferred stock is noncumulative. b. The preferred stock is cumulative. Required: 1. Determine the total and per share amounts that would be paid to the common stockholders and to the preferred stockholders under the two independent assumptions. (Round "per share" to 2 decimal places.)

Explanation / Answer

A. Non- Cumulative :-

The Fixed Rate of Return = 12 %
(0.12 * 9 ) * 10000 = $ 10800
This is what we paid to preferred shareholders

(66000 - 10800 )/ 49000 = $ 1.13
This is what we pay to common shareholder's

B. Cumulative : Missed three payments

10800 * 3 = $ 32,400
32400 / 10000 = $ 3.24
This is what we pay to preferred shareholders

(66000 - 32400 )/49000
This is what we pay to common shareholders

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