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Goodrich Inc. has had 7,500 shares of 9%, $100 par-value preferred stock and 15,

ID: 2786365 • Letter: G

Question

Goodrich Inc. has had 7,500 shares of 9%, $100 par-value preferred stock and 15,000 shares of $10 par-value common stock outstanding for the past two years. During the most recent year, dividends paid totaled $100,000; in the prior year, dividends paid totaled $60,000. Three independent situations are listed below. Write out and circle your answer for the amount of dividends paid out to preferred and common shareholders this year. (Hint: How will the $100,000 be split up?)

Preferred stock is non-cumulative and non-participating:

Preferred stock is cumulative and non-participating:

Preferred stock is cumulative and participating:

Explanation / Answer

Preferred stock is non-cumulative and non-participating:

Before last year

Dividend = 7500*(9%*100) = 7500*9 = 67500 > 60000

Hence paid dividend = 60000 (60000 / 7500 = 8 per preferred stoc

Common equity dividend = 0

Last year

Total = 100000

Prefered = 9 * 7500 = 67500

Common = 100000 - 67500 = 32500

Preferred stock is cumulative and non-participating:

Before last year

Dividend = 7500*(9%*100) = 7500*9 = 67500 > 60000

Hence paid dividend = 60000 (60000 / 7500 = 8 per preferred stock)

Common equity dividend = 0

Last year

Total = 100000

Prefered = 9 * 7500 = 67500 this year part

As it is cumulative last year pending has to be paid

last year remaining = 7500

Total preferred = 67500 + 7500 = 75000

Common = 100000 - 75000 = 25000

Preferred stock is cumulative and participating:

Before last year

Dividend = 7500*(9%*100) = 7500*9 = 67500 > 60000

Hence paid dividend = 60000 (60000 / 7500 = 8 per preferred stock)

Common equity dividend = 0

Last year

Total = 100000

Prefered = 9 * 7500 = 67500 this year part

As it is cumulative last year pending has to be paid

last year remaining = 7500

Preferred with cumulative = 67500 + 7500 = 75000

Remaining 25000 allocated in the ratio of thier values b/w common holders and preferred holders

Preferred value = 7500*100 = 750000

Common stock = 15000*10 = 150000

Wp = 750000 / (750000 + 150000) = 83.33 %

Wc = 1 - 83.33% = 16.67 %

Dividend to preferred = 25000*83.33 % = 20833.33

Total preferred = 67500 + 7500 + 20833.333 = 95833.33

Common = 25000*16.67% = 4166.67

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