Question

Dividends

Keener Company has had 800 shares of 8%, $100 par preferred stock and 44,000 shares of $5 stated value common stock outstanding for the last 3 years. During that period, dividends paid totaled $5,400, $31,000, and $35,400 for each year, respectively.

Required:

Compute the amount of dividends that Keener must have paid to preferred shareholders and common shareholders in each of the 3 years, given the following 3 independent assumptions:
If an amount is zero, enter "0".

1. Preferred stock is nonparticipating and noncumulative.

Keener Company
Schedule of Dividends
	Preferred	Common	Total
Year 1	$	$	$
Year 2	$	$	$
Year 3	$	$	$

2. Preferred stock is nonparticipating and cumulative.

Keener Company
Schedule of Dividends
	Preferred	Common	Total
Year 1	$	$	$
Year 2	$	$	$
Year 3	$	$	$

3. Preferred stock is fully participating and cumulative.

Keener Company
Schedule of Dividends
	Preferred	Common	Total
Year 1	$	$	$
Year 2	$	$	$
Year 3	$	$	$

Answer 1

If the preferred stock is cumulative, dividends not paid in earlier years must also be paid before anything is paid out to common stockholders.

If the preferred stock is participating, after both preferred and common stock holders receive a specified level of dividends, balance dividend distributions are shared with common stockholders in the ratio of the respective par values of participating preference stock and common stock.

Preferred stock dividends = 800 shares * $100 par * 8% = $6,400

Common stock dividends = 44,000 shares * $5 stated * 8% = $17,600

1.

Keener Company
Schedule of Dividends
	Preferred	Common	Total
Year 1	$5,400	$0	$5,400
Year 2	$6,400	$24,600 ($31,000-$6,400)	$31,000
Year 3	$6,400	$29,000 ($35,400-$6,400)	$35,400
2. Keener Company Schedule of Dividends Preferred Common Total Year 1 $5,400 $0 $5,400 Year 2 $7,400 ($6,400+$1,000) $23,600 ($31,000-$7,400) $31,000 Year 3 $6,400 $29,000 ($35,400-$6,400) $35,400 Keener Company Schedule of Dividends Preferred Common Total Year 1 $5,400 $0 $5,400 Year 2 $9,507 $23,493 $31,000 Year 3 $6,604 $28,796 $35,400 Year 2 Preferred dividends = $7,400+($31,000-$7,400-$17,600)*800/44,800 = $7,507 Year 2 Common dividends = $17,600+($31,000-$7,400-$17,600)*44,000/44,800 = $23,493 Year 3 Preferred dividends = $6,400+($35,400-$6,400-$17,600)*800/44,800 = $6,604 Year 3 Common dividends = $17,600+($35,400-$6,400-$17,600)*44,000/44,800 = $28,796