3. No good Company has two types of stock outstanding: (10 points) Preferred sto

Question

3. No good Company has two types of stock outstanding: (10 points) Preferred stock, 6%, $100 par, authorized 10,000 shares, issued 2,000 shares. Common stock, S.01 par, authorized 100,000 shares, issued 60,000. Calculate the dividends in total and per share under each of the following conditions. A) The preferred stock is cumulative. previous two years. This year they are setting aside $111,000 for dividends. Preferred stock Common stock The company hasn't paid dividends in either of the total ,00 per share share total per share B) The preferred stock is noncumulative. The company hasn't paid dividends in either of the previous two years. This year they are setting aside $111,000 for dividends. total (O,00 per share tal 0,000 per share Preferred stock Common stock total per share

Explanation / Answer

A.

It is mentioned that company hasn’t paid dividend in last 2 years to Cumulative Preference Shareholders so their interest will be accumulated and will be paid in 3rd year along with dividend of last 2 years

Total Preference Dividend = Last 2 Years Dividend + Current Year dividend

= ($200,000 * 6% * 2 Years) + ($200,000*6%)

Total Preference Dividend = $36,000

Preference Dividend per share = $36,000 / 2000 Shares

Preference Dividend per share = $18 per share

Common Stock

Dividend = Net Income – Preference Dividend

= 111,000 – 36,000

Dividend = $75,000

Dividend per share = $75,000 / 60,000 Shares

Dividend per share = $1.25 per share

B.

In Non Cumulative preference shares dividend unpaid is not accumulated

Total Preference Dividend = Current Year dividend

= ($200,000*6%)

Total Preference Dividend = $12,000

Preference Dividend per share = $12,000 / 2000 Shares

Preference Dividend per share = $6 per share

                

Common Stock

Dividend = Net Income – Preference Dividend

= 111,000 – 12,000

Dividend = $99,000

Dividend per share = $99,000 / 60,000 Shares

Dividend per share = $1.65 per share

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