The shareholders\' equity of Kramer Industries includes the data shown below. Du

Question

The shareholders' equity of Kramer Industries includes the data shown below. During 2019, cash dividends of $250 million were declared. Dividends were not declared in 2017 or 2018. Common stock Paid-in capital-excess of par, common Preferred stock, 10%, nonparticipating Paid-in capital-excess of par, preferred (in millions) $320 960 160 400 Required: Determine the amount of dividends payable to preferred shareholders and to common shareholders under each of the following two assumptions regarding the characteristics of the preferred stock. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) Assumption A The preferred stock is noncumulative. Assumption B- The preferred stock is cumulative. ($ in millions) Preferred Common Assumption A Assumption B

Explanation / Answer

Answer

Assumption A- The Preferred stock is non-cumulative

Dividend payable to Preferred Shareholder = $160 Million * 10% = $16 Million

Dividend payable to Common Shareholder = $250 Million - $16 Million = $ 234 Million

Note:

( When the Stocks are non-cumulative, the dividend in arrears will not be given to Preferred Shareholders.

Therefore, only the Dividend due for the current year will be given to shareholders )

Assumption B- The Preferred stock is cumulative

Dividend payable to Preferred Shareholder = ($160 Million * 10%) * 3 Years = $48 Million

Dividend payable to Common Shareholder = $250 Million - $48 Million = $ 202 Million

Note:

( When the Stocks are cumulative, the dividend in arrears will not be given to Preferred Shareholders.

Therefore, only the Dividend due for the current year will be given to shareholders )

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