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Swifty Corporation has 2,000 shares of 10%, $130 par value preferred stock outstanding at December 31,...

Swifty Corporation has 2,000 shares of 10%, $130 par value preferred stock outstanding at December 31, 2020. At December 31, 2020, the company declared a $140,000 cash dividend. Determine the dividend paid to preferred stockholders and common stockholders under each of the following scenarios.

1. The preferred stock is noncumulative, and the company has not missed any dividends in previous years.

The dividend paid to preferred stockholders $

The dividend paid to common stockholders $

2. The preferred stock is noncumulative, and the company did not pay a dividend in each of the two previous years.

The dividend paid to preferred stockholders $

The dividend paid to common stockholders $

3. The preferred stock is cumulative, and the company did not pay a dividend in each of the two previous years.

The dividend paid to preferred stockholders $

The dividend paid to common stockholders $

Solutions

Expert Solution

Solution

.1 The preferred stock is noncumulative, and the company has not missed any dividends in previous years.

The dividend paid to preferred stockholders $ 26,000

The dividend paid to common stockholders $ 114,000

2. The preferred stock is noncumulative, and the company did not pay a dividend in each of the two previous years.

The dividend paid to preferred stockholders $26,000

The dividend paid to common stockholders $114,000

3. The preferred stock is cumulative, and the company did not pay a dividend in each of the two previous years.

The dividend paid to preferred stockholders $78,000

The dividend paid to common stockholders $62,000

When preference stock are cumulative the unpaid dividend in any year is paid in the year when their is sufficient profit.

In case of non cumulative preference stock when a divided is unpaid in any year the dividend liability for the company lapses for that year.

Scenario 1 Scenario 2 Scenario 3
Dividend declared $ 1,40,000.00 $   1,40,000.00 $    1,40,000.00
Dividend to be paid to
Preference stockholders $      26,000.00 $       26,000.00 $       78,000.00
Common stock holders $ 1,14,000.00 $   1,14,000.00 $       62,000.00

Dividend to preference stockholders will be paid for 3 years in scenario 3. One for current year and 2 for previous years.

ekkarill92 answered 8 months ago
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